Japanified World Ahead

By John Mauldin

April 12, 2019

Losing Decades
Too Much, Too Fast
A $10 Trillion Federal Reserve Balance Sheet
Mastering Private Markets

Regular readers may have noticed me slowly losing confidence in the economy. Your impression is correct and there’s a good reason for it, as I will explain today. The facts have changed so my conclusions are changing, too.

I still think the economy is okay for now. I still see recession odds rising considerably in 2020. Maybe it will get pushed back another year or two, but at some point this growth phase will end, either in recession or an extended flat period (even flatter than the last decade, which says a lot). And I still think we are headed toward a global credit crisis I’ve dubbed The Great Reset.

What’s evolved is my judgment on the coming slowdown’s severity and duration. I think the rest of the world will enter a period something like Japan endured following 1990, and is still grappling with today. It won’t be the end of the world; Japan is still there, but the little growth it’s had was due mainly to exports. That won’t work when every major economy is in the same position.

Describing this decline as “Japanification” may be unfair to Japan but it’s the best paradigm we have. The good news is it will spread slowly. The bad news is it will end slowly, too.

Capitalism Gone Wild

By John Mauldin

April 5, 2019

Unwise Investment
Zombie Companies
Gummed-Up Economy
Uncreative Destruction
The Drive for Scale
Helicopter Governments

Recession is coming. We can debate the timing, but the economy will turn decisively downward at some point. My own analysis, looking at the data available on April 4, says recession isn’t likely this year but unfortunately looks very probable in 2020.

In addition to when it will happen, there’s also the question of how deep the next recession will be. A shallow downturn wouldn’t be fun, but compared to the last one might feel relatively refreshing.

Alas, I don’t think we will be that lucky. I think the opposite: The next recession will be deeper, longer and far more painful to many more people than your average recession, and could persist as long as the last one. That is because the next recession in all likelihood will be truly global. If you sailed through 2007–2009 without your lifestyle changing, I wouldn’t assume it will happen that way again.

Ironically, but not surprisingly, it will be the response to the last recession that makes the next one so much worse. Part of the reason is that investors once again “learned” that if you simply stay the course, the market will get you back to where you were and more. The massive move into low-fee index investing instead of active management will make the next recession more painful.

Manufacturing blame

Date: 04-04-2019
Source: The Economist

The gloom hanging over the world economy is confined to manufacturing
Service industries have defied the sinking mood

Pessimism about the world economy has grown throughout 2019. Disappointing data, tumbling bond yields, the trade war between China and America and political crisis in Britain have all played a part. The only bright spot has been mostly buoyant stockmarkets. On April 9th the imf will probably report a downgrade to its forecast for global growth this year, which in January stood at 3.5%. But there has so far been only a deceleration, not a downturn, because economic weakness has been contained mostly to manufacturing, rather than afflicting the service sector (see chart). And a manufacturing rebound might soon lift the global mood.

Manufacturing’s woes can be blamed primarily on falling global trade growth. That is down partly to the trade war, and partly to Chinese policymakers’ attempts to reduce leverage, which slowed domestic growth late last year, curtailing demand for imports. The pain has been felt most in Europe, which is more exposed than America to emerging markets. It has been particularly acute in Germany. On April 1st a survey of German manufacturers, a preview of which buffeted bond markets in March, turned out even worse than expected. Industrial production has slowed even more sharply in Germany than in Italy, which is in recession, note economists at Goldman Sachs, a bank. Yet Germany’s service sector appears to be growing strongly, as does that of the euro zone as a whole.

Bei der Prognose von Rezessionen sind Ökonomen schlecht

Wir nicht! (hfk)

Studien. Der Aktienmarkt deutet eine Rezession zuverlässiger an, als Ökonomen das tun. Dass Profis so danebenliegen, hat interessante Gründe.

02.04.2019 um 18:15

London/Wien. Im Jahr 1966, vier Jahre, bevor er den Nobelpreis für Ökonomie erhielt, scherzte Paul Samuelson, dass Rückgänge der US-Aktienkurse sogar neun Rezessionen im Land richtig vorhergesagt hätten – obwohl letztlich nur fünf eingetreten sind. Investoren würden eben zur Panik neigen.

Die Vertreter seines Berufsstandes würden dennoch alles für eine solche Treffsicherheit geben. In Wirklichkeit nämlich haben diejenigen, die dafür bezahlt werden, Wendepunkte im Konjunkturzyklus auszurufen, eine traurige Erfolgsbilanz. Dies zeigt eine Untersuchung just zum jetzigen Zeitpunkt, da das Rezessionsgespenst wieder umhergeht: Im Gegensatz zum Aktienmarkt ist bei den professionellen Auguren die Wahrscheinlichkeit größer, dass sie Rezessionen verpassen, als welche zu prognostizieren, die nie eintreten. Der Tiefpunkt war natürlich das allgemeine Versagen, die große Rezession Amerikas zu prognostizieren, die im Dezember 2007 begann – neun Monate vor der Insolvenz von Lehman Brothers.

Schwache Bilanz des IWF

Global Growth Faces Fresh Threat as Industrial Downturn Spreads

Date: 01-04-2019
Source: The Wall Street Journal

Downturn has gripped factories in the eurozone as well as major Asian exporters such as Japan and South Korea

Factory activity in much of the world shrank last month, stirring fears that a rebound in manufacturing in China won’t be enough to stave off a sharp slowdown in global economic growth this year.

Fresh figures Monday showed that an industrial downturn has gripped factories in the eurozone’s biggest countries, including Germany, the region’s economic powerhouse, as well as major Asian exporters such as Japan and South Korea. The new data added to expectations that central banks will continue to loosen monetary policy to combat the slowdown.

March surveys of purchasing managers at factories around the world showed a pickup in activity in China and other regional economies with which it has close links, including Indonesia, the Philippines and Thailand.

Federal Reserve: Ohne permanente Interventionen kommt der Crash

Dank an H.G.!

Deutsche Wirtschafts Nachrichten | Veröffentlicht: 21.03.19 09:44 Uhr

Die Federal Reserve bricht die Normalisierung ihrer Geldpolitik ab. Das marode Finanzsystem kann offenbar keine dauerhaft steigenden Zinsen mehr vertragen. Für die Weltwirtschaft sind schwere Zeiten angebrochen.

Angesichts der unsicheren Konjunkturaussichten will die US-Notenbank Fed dieses Jahr die Füße stillhalten und die Ära der schrittweisen Zinserhöhungen beenden. Die Währungshüter um Fed-Chef Jerome Powell planen nach neun Erhöhungen binnen drei Jahren für 2019 eine Pause, wie sie am Mittwoch signalisierten. Erst 2020 könnte noch eine Anhebung kommen.

Der Leitzins ist nun in der Spanne von 2,25 bis 2,5 Prozent in etwa auf einem Niveau, das die Wirtschaft laut Powell weder anschiebt noch bremst. „Jetzt ist eine großartige Zeit, um geduldig zu sein“, betonte er. Aus den Konjunkturdaten lasse sich kein Grund ableiten, Zinsen zu erhöhen oder zu senken.

Die Entscheidung der Zentralbank hat massive Auswirkungen. Praktisch gesteht sie damit ein, dass die Weltwirtschaft vor schwierigen Zeiten steht und eine Rezession nicht mehr ausgeschlossen ist. Es ist außerdem ein Eingeständnis, dass das auf Schuldgeld basierende Finanzsystem nicht mehr ohne dauerhafte Eingriffe durch die Zentralbanken bestehen kann.

What’s Causing China’s Economic Slowdown

Date: 12-03-2019
Source: Foreign Affairs By Christopher Balding

And How Beijing Will Respond

Last year, China experienced its slowest economic growth in nearly three decades. The trouble seemed to start in the fall. Wage growth has cooled. Surveys show that companies in the manufacturing sector have begun shedding jobs. And imports are down, hurting other major exporting economies.

There’s more than one reason for the slowdown. A rapidly aging population, a falling birth rate, a tightening Federal Reserve, and a slowing global economy have combined to put the brakes on China’s economy. Yet Beijing cannot risk a recession. The Chinese government will not allow growth to slow significantly, even if that means storing up problems for the future.

PERFECT STORM
China’s problems stem primarily from decisions made years—in some case, decades—ago. In the past, China benefitted from a growing workforce, which boosted GDP both by adding workers and because younger workers tend to be more productive than older ones. But around 2012, the working-age population began to shrink, the inevitable result of the one child policy, which was enacted in 1979. The decline in growth rates owes in part to this demographic winnowing.

Recession: Are We There Yet?

By John Mauldin

February 22, 2019

Dramatic Weakening
Missing Inversion
No Credit Stress
Not Going Global
The Rest of the Story
“I’m an American!”—Pat Caddell—RIP

An old joke says economists predicted 15 of the last 10 recessions. In other words, they’re frequently wrong and often too pessimistic.

I think it’s not so simple. Every recession prediction is eventually correct; some just get the timing wrong. That’s because, so long as we have a business cycle, a recession is always coming. The only question is when it will strike.

There’s also some dispute about what, exactly, counts as “recession.” The usual definition is two consecutive quarters of falling real GDP. But as I’ve written, GDP itself is a nebulous statistic with substantial margin of error. We can never be quite sure.

My own outlook has been consistent: The current growth phase is getting old and will end as they all do, but we probably have another year or so. That is about as far out as my data reads can actually give us any statistical confidence. Macro events like Federal Reserve error, trade war, ugly Brexit, and others could hasten the decline. But as of now, the US and the developed world seem likely to sustain at least mild growth through 2019.

Ein wirtschaftlich durchwachsenes Jahr 2019

Feb 8, 2019 Nouriel Roubini, Project Syndicate

Nouriel Roubini, a professor at NYU’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.

NEW YORK – Auf das synchronisierte globale Wirtschaftswachstum von 2017 folgte das asynchrone Wachstum des Jahres 2018, in dem, von den USA abgesehen, in den meisten Ländern Konjunkturabschwünge einsetzten. Sorgen über die US-Inflation, den geldpolitischen Kurs der US Federal Reserve, anhaltende Handelskriege, Italiens Haushalts- und Schuldenprobleme, den Konjunkturabschwung in China und die Anfälligkeiten der Schwellenmärkte führten am Jahresende zu steilen Kursrückgängen an den weltweiten Aktienmärkten.

Die gute Nachricht zu Beginn des Jahres 2019 ist, dass das Risiko einer unmittelbaren globalen Rezession niedrig ist. Die schlechte Nachricht ist, dass wir auf ein Jahr des synchronisierten globalen Abschwungs zusteuern; das Wirtschaftswachstum wird in den meisten Regionen in Richtung seines Potentials fallen und dieses in einigen Fällen noch unterschreiten.

Italy’s populist government is dreaming of economic growth

Date: 07-02-2019
Source: The Economist

In fact the country is in recession, and the coalition is cracking

For italy, 2019 will be bellissimo, its prime minister, Giuseppe Conte, said this month. The economy, he declared, could grow by up to 1.5%. With much of Europe at risk of slipping into recession, that sounds pretty good.

In fact, Italy is already in recession. Its gdp fell in both the third and fourth quarters of 2018, and few forecasters are as sanguine as Mr Conte. The Bank of Italy expects the economy to grow by just 0.6% this year. The prime minister is banking on an expansionary budget. If this fails to revive the economy, the two parties in his populist coalition, the Five Star Movement (m5s) and the nationalist Northern League, will be in trouble. Many question whether their fractious marriage can survive beyond summer.