Juggling Dynamite

Good discussion of economic facts with David Stockman this morning…

David Stockman, head of President Ronald Reagan’s Office of Management and Budget, and Paul Roberts, author of “The Impulse Society,” examine the state of U.S. fiscal policy, spending and budgets.  Here is a direct video link.

Asset bubbles have a fleeting bump in the wealth of some households and thereby perversely dissuade fiscal discipline and healthy saving and investment rates as the value of assets go up. Then when price bubbles burst once more, households and the economy are revealed to be years behind the capital targets needed. Here is a direct video link.

Central banks are wrong to increase their balance sheets and try to contain inflation at 2 percent. Here is a direct video link.

Morgan Stanley and Goldman Sachs see only global strength ahead…what? the risk sellers see no signs of a downturn? Surprise, surprise…

Bloomberg’s Simon Kennedy reports on the global economy and the risk of a recession.  Here is a direct video link.

The downside of using QE to ‘stimulate’ risk assets far above global growth the past 4 years, is that it only worked on the assumption that global growth would catch up and justify the high prices. With the global economy weakening, not strengthening today, the over-valuation in asset prices grows more garish by the hour.

Many finance types today say they are confident that stock markets will continue to rise because they do not see a recession ahead. [The sell side, never does, but that aside.] In saying this they are ignoring the fact that high stock and high yield debt prices are the strongest evidence bulls point to of an economic “recovery” the past 5 years. Once prices recouple again with true global growth trends (that are much lower), the evidence of the much touted recovery evaporates as well. In other words, once the veneer of rising asset prices is removed, an enduring recession will be self-evident.

As commodities rallied 2002 to 2008, most people were oblivious to the huge role that a falling US dollar was having in inflating the price of other assets. We referenced the following teeter totter chart many times in our presentations.
Since 2011 as the US dollar has strengthened, the inverse relationship has held to the surprise of most. The ride may have just begun….

“Crude oil prices face several factors that could send it below current levels, notably the quickly strengthening U.S. dollar, Raoul Pal of Global Macro Investor said Tuesday.

“The probability of a dollar breakout is very big. So, if that happens, then the chances of the dollar moving much more rapidly than we’ve seen for many, many years, and that would lead oil to go much further,” he said. “So, prices in oil could go down to $30, $40 easily if the dollar moves in the way that I’m thinking it possibly will.”

Here is a direct video link.