Juggling Dynamite

It is critical to keep in mind that monetary policy changes impact the real economy at a lag of several quarters.  So the tightening cycle that ran from December 2015 to December 2018 will continue to dampen global demand over the next several quarters, even if central banks tighten no further and move to more stimulative efforts in the months ahead.

The speed and spread of global slowing in the last few months have alarmed the consensus so much that the futures market has now moved from pricing a 90% probability of US rate hikes in 2019 to zero percent today, as shown on left courtesy of The Daily Shot.

This Hedgeye cartoon sums the recent change in thinking well.

The segment below offers a good summary of spreading global weakness and how little monetary easing room suggests the incoming downturn may be longer/deeper than average.

Joachim Fels, global economic advisor at Pacific Investment Management Co., talks about the global economy, monetary and fiscal policies. Here is a direct video link.

Illegal money flows in Canada have inflated property prices and profits for insiders in gambling, luxury retail, the realty sector and lenders, while costing Canadians greatly in terms of unaffordable home prices, related household debt, increased crime and lost tax revenues.

Court cases have collapsed, news conferences cancelled, and political leaders stonewalled in multiple attempts to inform the public of the magnitude of British Columbia’s problem with illegal gambling.  Not that things haven’t been going on away from the public eye. For at least six years, someone who witnessed criminal behavior has been quietly co-operating with the RCMP and helping reporters ask the right questions.

In this week’s W5 investigation, he reveals his identity in public for the first time, hoping it will help all Canadians appreciate the scope of our country’s problem with organized crime and money laundering.  It’s a massive problem in Vancouver, but the city isn’t alone.  Here is a direct video link.

In a report last week, Societe Generale analysts warned that a historically reliable indicator suggests a US recession is probably close at hand with commensurate declines in corporate security prices.

News articles on US economic strength as a percentage of all news articles (in red below) has led the US ISM manufacturing index (in grey) over the last 20 years.  When the percentage of economic strength articles fell below 40% in 2008 and 2001, manufacturing followed, and the US economy was in recession within a few months.  After falling throughout 2018, Soc Gen’s Newsflow indicator fell below 40% for a third time since 1998 on December 15, 2018.

This on top of an ongoing contraction in US corporate earnings growth into 2019, is likely to drive inflows into government treasuries and out of corporate securities as profit warnings, defaults, and volatility increase.  See:  An ‘earnings recession’ has arrived and the market’s not ready for it, Morgan Stanley and U.S. recession increasingly credible to top-ranked strategy team:

“The next recession could come sooner than expected,” the SocGen strategists wrote. “As there are no signs of an end to the sharp drop over the past few months in our indicators, hopes for improvement in the growth outlook seem purely speculative for now.”