Source: The Wall Street Journal By Burton G. Malkiel and Atanu Saha
Even the best indicators of downturns are unreliable, but investors can take steps to prepare either way.
Year‑end is the traditional time to forecast the economy and ensure that your investment portfolio can handle future shocks. Habitual worrywarts—including some practitioners of the dismal science—see ominous signs that America’s record‑breaking expansion will soon end. Meanwhile, most stock‑market pundits see recent strong consumer spending as a good omen, signifying that stocks and the economy will continue to rise. Let’s review the best indicators to make sense of the picture.
The Conference Board, a nonprofit for economic research, tracks 11 predictive measures of future economic activity in its Index of Leading Economic Indicators. The LEI purports to forecast the economy over the coming three to six months. The individual components include data on unemployment, the direction of the stock market, consumer and business sentiment, and manufacturing activity. Unfortunately, the LEI is somewhat unreliable as a forecaster and often misleading.
We examined the record of the LEI (and its components) over the eight recessions and nine sudden market declines of 15% or more since 1960. The good news is that the LEI and many of its components have had a near‑perfect record in anticipating recessions. The most reliable indicators have been the shape of the yield curve, business and consumer confidence, durable‑good purchases and housing starts, and the health of the labor market. These measures have also correctly signaled stock‑market downturns. (The biggest exception is consumer spending, which has risen before nearly every past recessions, falling only after the recession starts.) Den Rest des Beitrags lesen »
Nouriel Roubini, Professor of Economics at New York University’s Stern School of Business and Chairman of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank. His website is NourielRoubini.com.
Owing to a recent easing of both Sino-American tensions and monetary policies, many investors seem to be betting on another era of expansion for the global economy. But they would do well to remember that the fundamental risks to growth remain, and are actually getting worse.
NEW YORK – This past May and August, escalations in the trade and technology conflict between the United States and China rattled stock markets and pushed bond yields to historic lows. But that was then: since then, financial markets have once again become giddy. US and other equities are trending toward new highs, and there is even talk of a potential “melt-up” in equity values. The financial-market buzz has seized on the possibility of a “reflation trade,” in the hope that the recent global slowdown will be followed in 2020 by accelerating growth and firmer inflation (which helps profits and risky assets).
Nouriel Roubini, Professor of Economics at New York University’s Stern School of Business and CEO of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.
With the global economy experiencing a synchronized slowdown, any number of tail risks could bring on an outright recession. When that happens, policymakers will almost certainly pursue some form of central-bank-financed stimulus, regardless of whether the situation calls for it.
NEW YORK – A cloud of gloom hovered over the International Monetary Fund’s annual meeting this month. With the global economy experiencing a synchronized slowdown, any number of tail risks could bring on an outright recession. Among other things, investors and economic policymakers must worry about a renewed escalation in the Sino-American trade and technology war. A military conflict between the United States and Iran would be felt globally. The same could be true of “hard” Brexit by the United Kingdom or a collision between the IMF and Argentina’s incoming Peronist government.
Trumps Handelskrieg ist nur der Auslöser der sich anbahnen-den Rezession. Doch die Ursachen liegen tiefer: In der verfehlten Geldpolitik der großen Notenbanken.
Trumps Handelskrieg hat eine globale Wachstumsverlangsamung mitRezessionsgefahr ausgelöst. Doch die Ursachen der aktuellenWirtschaftsverlangsamung gehen tiefer. Man kann nicht alles der Trump-Administration oder – innerhalb Europas – dem Brexit anlasten. Es ist viel-mehr die gesamte Politik der letzten Dekaden, welche ein inkohärentes, un-sicheres Gebäude der Weltwirtschaft errichtet hat.
Ein wichtiger Punkt ist die schlechte Qualität des konjunkturellenAufschwungs seit der Grossen Finanzkrise, eigentlich sogar schon seit der Jahrtausendwende. Die Durchsetzung des sogenannten Freihandels mitChina (WTO-Beitritt Dezember 2011) und die Integration der osteuropäi-schen Länder in die Europäische Union waren zunächst primär eineArbitrage-Gelegenheit vor allem für westliche Großunternehmen undMultinationale, um Löhne, Steuern, Sozialleistungen und Umweltkosten zusparen beziehungsweise zu drücken. Der Freihandel erfolgte nur in eineRichtung: China schottete seinen Binnenmarkt weiterhin sorgsam ab, wodie Führung dies wollte: Über prohibitive Zölle, und über den Zwang zujoint ventures für ausländische, in China produzierende Unternehmen.Profitiert haben neben diesen Konzernen zum einen China und dessenZulieferer-Staaten in Asien, zum anderen die Länder Osteuropas. In denVereinigten Staaten und in Westeuropa ist die Industrie stark geschrumpft– Ausnahme das Auto- und Maschinenbauerland Deutschland sowie einigekleine Länder mit ähnlichen Eigenschaften. Ein wesentlicher Grund istauch, dass in den USA und in Europa seit Jahrzehnten zu wenig, teilweiseviel zu wenig, in die Infrastruktur investiert wird. Kein Wunder ist dasWirtschaftswachstum der letzten beiden Dekaden in vielenIndustrieländern von einer schwachen Investitionstätigkeit begleitet, nota-bene trotz der nominell und real niedrigsten Zinsen seit dem ZweitenWeltkrieg.Den Rest des Beitrags lesen »
Stocks, bonds, gold and oil have staged a rare concurrent rally
The New York Stock Exchange. The S&P 500 has risen 20% this year, even as Treasurys have rallied.
Stocks and bonds have staged a rare simultaneous ascent, logging the best performance in a quarter-century.
The S&P 500 has advanced 20% in 2019, while Treasurys have rallied. The last time the benchmark stock index rose more than 10% while the Treasury yield fell more than a percentage point in the first three quarters of the year was in 1995, according to Dow Jones Market Data.
That trend continued as the fourth quarter kicked off. Government bonds and gold notched gains last week as the S&P 500 hovered within 1.3% of its record reached in July and clinched its second straight week of gains. Den Rest des Beitrags lesen »
Kevin Rudd, a former prime minister of Australia, is President of the Asia Society Policy Institute in New York.
Driven by domestic nationalist forces and the need to save face, US President Donald Trump and his Chinese counterpart, Xi Jinping, have continued to escalate the bilateral trade war, despite their shared interest in resolving it before the end of the year. To make a deal, both sides need to start taking substantive steps immediately.
NEW YORK – Now that the celebrations marking the 70th anniversary of the founding of the People’s Republic of China are over, it is time to direct attention back to the Sino-American trade war. That conflict may well be about to enter its endgame. Indeed, the next round of negotiations could be the last real chance to find a way through the trade, technology, and wider economic imbroglio that has been engulfing both countries.
Failing that, the world should start preparing for its rockiest economic ride since the 2008 global financial crisis.Den Rest des Beitrags lesen »
J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.
Business cycles can end with a rolling readjustment in which asset values are marked back down to reflect underlying fundamentals, or they can end in depression and mass unemployment.There is never any good reason why the second option should prevail.
BERKELEY – I recently received an email from my friend Mark Thoma of the University of Oregon, asking if I had noticed an increase in commentaries suggesting that a recession would be a good and healthy purge for the economy(or something along those lines). In fact, I, too, have noticed more commentators expressing the view that “recessions, painful as they are, are a necessary growth input.” I am rather surprised by it.
Jean Pisani-Ferry, a senior fellow at Bruegel, a Brussels-based think tank, holds the Tommaso Padoa-Schioppa chair at the European University Institute, and is a visiting fellow at the Peterson Institute in Washington, DC.
A decade after the Great Recession, Europe’s economy is still convalescing, and another period of prolonged hardship would cause serious, potentially dangerous economic and political damage. With monetary and fiscal policy unlikely to provide enough stimulus, policymakers should explore alternative options.
WASHINGTON, DC – Despite confident official pronouncements, the deteriorating state of the global economy is high on the international policy agenda. The OECD recently revised down its forecast to 1.5% growth in the advanced G20 economies in 2020, compared to almost 2.5% in 2017. And its chief economist, Laurence Boone, warned of the risk of further deterioration – a coded way of indicating a growing threat of recession.
Date: 25-09-2019
Source: The Guardian by Nouriel Roubini
Trump’s rows with China and Iran, Brexit and Argentina’s populism put the world on a knife edge
Shipping containers from China and other Asian countries
In the classic game of chicken, two drivers race directly toward each other, and the first to swerve is the loser. If neither swerves, both will probably die. In the past, such scenarios have been studied to assess the risks posed by great-power rivalries. In the case of the Cuban missile crisis, for example, Soviet and American leaders were confronted with the choice of losing face or risking a catastrophic collision. The question, always, is whether a compromise can be found that spares both parties their lives and their credibility.
There are now several geo-economic games of chickenplaying out. In each case, failure to compromise would lead to a collision, most likely followed by a global recession and financial crisis. The first and most important contest is between the US and China over trade and technology. The second is the brewing dispute between the US and Iran. In Europe, there is the escalating brinkmanship between Boris Johnson and the EU over Brexit. Finally, there is Argentina, which could end up on a collision course with the International Monetary Fund after the likely victory of the Peronist Alberto Fernández in next month’s presidential election. Den Rest des Beitrags lesen »
Date: 11-09-2019
Source: Foreign Affairs By Jared Bernstein
The Next Downturn Will Be Political—and Tough to Escape
The United States is in its 11th year of uninterrupted economic expansion, unemployment has hit a historic low, and growth, while decelerating, still hums along. Yet anxiety about the next recession seems to mount with each new tariff or tweet that President Donald Trump lobs at China as part of his trade war—and for good reason. The president’s policies are clearly hurting tradeable sectors of the U.S. economy, especially manufacturing, which must contend with the double whammy of U.S. tariffs on imported inputs and Chinese tariffs on exports of finished goods. U.S. producers of vehicles, electronics, and agricultural goods, among other things, are all scrambling to disentangle their supply chains from China. But doing so is costly and complicated, and many of them are suffering as a result.
The trade war may not be enough to tip an otherwise healthy U.S. economy into recession. But if it does, the United States will be in a uniquely bad position to fight its way out again. The country is almost certain to enter the next downturn with historically high levels of public debt. That is worrying because governments in this position have historically failed to apply enough fiscal stimulus—that is, boost the economy through increased government spending as well as indirect measures like tax cuts—to counteract recessions. At the same time, short-term U.S. interest rates are already relatively low, meaning there will be limited room to cut them—the other main tool that governments have to battle downturns.Den Rest des Beitrags lesen »
NEW YORK – This past May and August, escalations in the trade and technology conflict between the United States and China rattled stock markets and pushed bond yields to historic lows. But that was then: since then, financial markets have once again become giddy. US and other equities are trending toward new highs, and there is even talk of a potential “melt-up” in equity values. The financial-market buzz has seized on the possibility of a “reflation trade,” in the hope that the recent global slowdown will be followed in 2020 by accelerating growth and firmer inflation (which helps profits and risky assets).