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Rickards: No Recovery Until 2045?

Rickards: No Recovery Until 2045?

Authored by James Rickards via DailyReckoning.com,

The economy is now at a perilous point of departure….

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This article was originally published by Zero Hedge

Rickards: No Recovery Until 2045?

Authored by James Rickards via DailyReckoning.com,

The economy is now at a perilous point of departure. There was no V-shaped recovery, and one should not be expected. There was a severe contraction in March–April 2020, followed by a recovery in July–September 2020. However, the recovery only made up part of the lost ground, not all of it.

We had a partial V or a truncated V. The economy recovered somewhat, but growth is not back to the prior trend, bearing in mind that the prior trend (from 2009–2019) was itself below the long-term trend.

Now we are experiencing slowing growth and metrics in employment and wages that are moving sideways or down without having recovered previous highs.

For the past 18 months, the economic damage of the pandemic has been papered over with federal handouts of various kinds. We had a $2 trillion bailout under Trump in June 2020, followed by another $900 billion bailout during Trump’s final days as president in December 2020.

President Biden followed with another $2 trillion bailout bill in February 2021 and is still pushing for an additional $1 trillion infrastructure bill and a $3.5 trillion welfare bill now pending before Congress. We got $1,200 and $600 checks from Trump and another $1,400 check from Biden.

We had Paycheck Protection Program loans, $50 billion airline bailouts and similar large-scale bailouts for cruise ships, resorts, casinos and other affected industries. Everyday Americans could receive an additional $600 per week on top of regular unemployment benefits, and the benefits period was extended.

Other programs included rent moratoria, eviction moratoria and extended grace periods on repayment of student loans. The list goes on. The total tab could easily exceed $10 trillion in relief-type deficit spending before all is said and done.

No doubt some of this spending was needed; especially in the initial March–June 2020 period when there was so much uncertainty and the economy was locked down tight.

Still, economists question whether this much relief was actually needed and whether the $4.5 trillion of additional spending still on the drawing boards is needed also.

The immediate problem is that the economy is clearly slowing right now, just as many of these programs expire and before new programs come online. New York state will not fill the gap as federal unemployment benefit boosters expire.

The federal unemployment benefit addition of $600 per week expired on Sept. 6. States have the ability to make up the difference from their own resources, but most don’t have the money. New York is clearly a state that has a huge budget deficit on its own and is not allowed by law to engage in more deficit spending to undertake new programs.

Other states may have the funds but are choosing not to spend the money because they believe that unemployment recipients should be motivated to get a job. Apart from the merits of these debates, there is no doubt that the federal supplement to incomes is expiring at the same time the economy is slowing for other reasons.

Already Too Much Debt

The Biden administration will slow U.S. and global growth with a combination of higher taxes, more regulation and wasteful spending on programs such as the Green New Deal.

Biden administration deficit spending, which will approach $6 trillion of new authorizations in fiscal 2021, is continually claimed as stimulus.

In fact, there is no stimulus from such spending because the U.S. debt-to-GDP ratio is now approaching 130%. There is good evidence that debt-to-GDP ratios in excess of 90% produce less growth than the amount of new debt itself.

In other words, there is no stimulus and only an increasing debt-to-GDP ratio that makes the situation worse.

The U.S. was facing slower growth in the years ahead with or without the Biden administration’s policies because of high debt and a central bank that does not understand monetary economics.

Now that Biden’s policies are fully revealed and becoming law, it is clear that growth will be even worse than would otherwise be expected.

This is characteristic of a new great depression.

A recession is technically defined as two or more consecutive quarters of declines in GDP. A depression is not technically defined but is understood as a prolonged period of growth that is either below the long-term trend or below potential growth.

Technical recessions can occur during depressions. There were two technical recessions (1929–1933 and 1937–1938) during the Great Depression (1929–1940), yet the entire period was characterized by below-trend growth, high unemployment and deflation. Stock markets and commercial real estate prices did not recover their 1929 highs until 1954, a full 25 years later.

The New Depression Continues

We are in a new depression now. Growth declined in 2008. The 2009–2019 recovery averaged annual growth of about 2.2%, well below the long-term trend of 3.5–4.5%. GDP declined again by 3.4% in 2020, the steepest one-year decline since 1946.

Annualized growth for the first half of 2021 is 6.4%, but that is slowing quickly; the latest estimate for the third quarter of 2021 from the Atlanta Fed is annualized growth of 3.7%.

The December 2019 level of output was not recovered until July 2021. Interest rates have been declining sharply. That’s a sign of disinflationary expectations and may be an early warning of a new recession in 2022.

This is characteristic of a new great depression that can last for many years. Once the inflation narrative fades and the disinflation narrative comes to the fore, we can expect a stock market correction as asset prices adjust to the return of an era of slow growth.

Looking out even further ahead, the effects of the pandemic on the economy will be intergenerational. Most financial panics or recessions are followed by recovery within a year or less.

Pandemics produce different patterns.

No Recovery Until 2045?

One study from the Federal Reserve Bank of San Francisco in collaboration with outside academics showed that of the 19 highest fatality pandemics since the Black Death in the mid-1300s, the average time needed to return to normal levels of interest rates, growth and employment is more than 30 years.

This pattern of recovery from extreme events was seen in the aftermath of the Great Depression (although that was an extreme economic collapse, not a pandemic). While the Great Depression was over in 1940 (partly because of war spending as the U.S. moved toward World War II), the behavioral changes it produced did not fade until the late 1960s.

The 1950s were a period of peace and prosperity in the U.S. Still, Americans maintained high savings rates, mostly avoided conspicuous consumption and lived frugally as they had learned to do in the 1930s and during World War II.

This did not change until the baby boomers became young adults and teenagers in the late 1960s. The behavioral changes induced by the Great Depression did not fade until 30 years after the Depression was over. Such is the staying power of social trauma whether it be war, depression or pandemic.

We will not recover from this pandemic fully until 2045 or later in terms of savings, consumption, disinflation, low interest rates and low growth.

The only exception to this estimate would be if the pandemic were followed by another equally shocking event such as war or a financial panic.

Isn’t that reassuring?

Tyler Durden
Sun, 09/19/2021 – 13:35








Author: Tyler Durden

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Precious Metals

Stocks, Bonds, Bitcoin, & Bullion All Bid As Billionaire Tax Threat Builds

Stocks, Bonds, Bitcoin, & Bullion All Bid As Billionaire Tax Threat Builds

First things first, when is a wealth tax not a wealth tax?…

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Stocks, Bonds, Bitcoin, & Bullion All Bid As Billionaire Tax Threat Builds

First things first, when is a wealth tax not a wealth tax? When Janet Yellen says so…

The proposal under consideration from Senate Finance Committee Chairman Ron Wyden (D., Ore.) would impose an annual tax on unrealized capital gains on liquid assets held by billionaires, Treasury Secretary Janet Yellen said Sunday on CNN.

“I wouldn’t call that a wealth tax, but it would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals and right now escape taxation until they’re realized,” Ms. Yellen said.

But House Speaker Nancy Pelosi told CNN:

“We probably will have a wealth tax.”

But markets either a) don’t believe a word of it (given the relationship between all these billionaires as benevolent overlords of the political class), or b) don’t give a shit as The Fed will always be there…

And nowhere is this craziness more obvious than here. While Trump’s SPC (DWAC) stalled today (after rallying 800% in 2 days), TSLA and BKKT took over the crown of momentum-driven insanity kings

TSLA topped the trillion-dollar market-cap level for the first time (TSLA was up more than 1 GM today) on headline about HTZ ordering 100,000 TSLA vehicles…

Surpassing FB (ahead of tonight’s earnings) to join the ‘cuatro comas’ club…

Source: Bloomberg

All on the back of a massive gamma bomb.

@Stalingrad_Poor exclaimed:

“TSLA call options strikes up $10,000 in a single day. I’ve never seen this in my life”

NOTE: If unrealized gains are taxed as income (as several Democrats have indicated), Elon Musk would face a $30 billion tax bill for his gains this year!!

And BKKT soaring over 160% on its partnership with Mastercard on crypto rollout…

Bitcoin and Ethereum were both up today on the Mastercard news (and Neuberger Berman has linked up with BlockFi).

Bitcoin topped $63,500…

Source: Bloomberg

And Ethereum rallied back above $4200…

Source: Bloomberg

All the major US equity indices were higher today, led by Nasdaq and Small Caps. The Dow lagged but still closed green…

Record intraday (and closing) highs for The Dow and S&P today.

On a side-note, the S&P/TSX Composite rose again today – a record 14th straight daily gain (a record that stood for 102 years)…

All thanks to yet another major short-squeeze….

Source: Bloomberg

Utes and Financials lagged today while Consumer Discretionary and Energy ripped…

Source: Bloomberg

Treasuries were mixed today with yields lower across the curve aside from 30Y…

Source: Bloomberg

The yield curve (5s30s) steepened back into its recent range…

Source: Bloomberg

The dollar rallied on the day to the top of its recent narrow range…

Source: Bloomberg

WTI hit a new 7-year-high today above $85 before fading back into the red…

Gold jumped back above $1800…

Real yields dropped a little today, leaving room for a considerable move higher in gold still (to around $2000)…

Source: Bloomberg

Finally, the level of “greed” in the market is back at 2021 highs…

Source

“probably nothing” – oh and don’t forget that the last time capital gains taxes were hiked significantly was 1987 (from 20% to 28%) and that didn’t end so well eh?

Tyler Durden
Mon, 10/25/2021 – 16:00



Author: Tyler Durden

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Economics

Crypto news: BlockFi partners with $437 billion investment fund; EY sponsors Chainlink ‘hackathon’ event

Cryptocurrency lending firm BlockFi has partnered with Neuberger Berman to offer crypto-based products to the US investment manager’s customers. BlockFi,…

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Cryptocurrency lending firm BlockFi has partnered with Neuberger Berman to offer crypto-based products to the US investment manager’s customers.

BlockFi, along with Celsius and Nexo, is one of the crypto industry’s big three lending services. It made the announcement on  Monday and revealed the joint venture will include the development of exchange-traded funds (ETFs) and “other traditional structures.

The partnership’s products and strategies will be formulated and delivered by a newly created entity called BlockFi Nb.

With the Mastercard and Bakkt collab news barely a day old, it seems we’re in institutional crypto adoption season, although that’s pretty much been the case for the past 12 months.

“We are witnessing a significant shift in investor sentiment towards digital assets, and we believe that digital assets should be considered in modern portfolios,” said Greg Collett, president of the joint venture.

Neuberger Berman is a New York-based, 82-year-old independent investment management firm that looks after US$437 billion in client assets as of September 30. The firm’s main holdings reside in equities, fixed income, hedge funds and real estate.

 

Also making news: EY, Chainlink, GBTC, Uniswap, Rand Paul

• “Big Four” accounting firm Ernst & Young is sponsoring the Chainlink Fall 2021 Hackathon, running until Nov 28. The event gives crypto startups pitching opportunities with VCs.

• Grayscale’s GBTC (which is as close to a Bitcoin ETF as you’ll get in the US without actually being one), delivered better returns last week than the market’s new BTC ETFs.

• Decentralised exchange Uniswap is set to gain more exposure. Swiss digital asset issuer Valour is launching the first ever exchange-traded product (ETP) tracking the UNI token.

• US Republican Senator Rand Paul has stated that he thinks it’s possible Bitcoin could become the world reserve currency if more people lose faith in governments.

 

 

 

The post Crypto news: BlockFi partners with $437 billion investment fund; EY sponsors Chainlink ‘hackathon’ event appeared first on Stockhead.


Author: Rob Badman

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Economics

Oil in wait-and-see mode, gold moves up

Oil consolidates at the highs Oil markets probed the upside overnight, helped along by another large spike in natural gas prices. However, oil lacked the…

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Oil consolidates at the highs

Oil markets probed the upside overnight, helped along by another large spike in natural gas prices. However, oil lacked the momentum to maintain those intra-day highs as the US dollar started strengthening. With a lack of new headline drivers to sustain the moves. Brent crude finished 0.28% higher at USD 85.95 and WTI finished 0.50% lower at USD 83.75 a barrel, having traded as high at USD 85.35 intra-day. Asia has adopted a wait-and-see approach this morning, possibly on China nerves, leaving both contracts almost unchanged.

The US API Crude Inventories will be oil’s next volatility point, with a low print likely to lead to more price gains. However, the price action overnight does suggest that short-term upward momentum is waning as the trade gets ultra-crowded and the RSI indicators on both contracts remain overbought. Another 3 million barrel jump in inventories could spur some short-term long covering and see oil’s long-predicted sharp move lower finally occur to wash out some of the weak speculative longs. Once again though, I will reiterate that the overall environment for oil remains very constructive and any sharp sell-off is likely to see an equally sharp recovery. Of the two, WTI looks more vulnerable as it is more heavily traded by specs and Brent crude is more aligned to the international physical market.

The overnight highs at USD 86.70 and USD 85.40 a barrel for Brent and WTI form initial resistance. Trendline support at USD 83.40 and USD 79.70 a barrel should be the limit for any downside correction. Only a daily close below those levels suggests a deeper correction is possible.

Gold’s price action remains constructive

Gold staged another impressive rally overnight and there is no doubt that its price action is becoming more constructive towards further gains. Gold rose 0.85% to USD 1807.80 an ounce before some long-covering saw it fall 0.25% to USD 1803.20 an ounce in Asia. The rally is made more impressive by the fact that the US dollar has continued strengthening against the major currencies overnight. In contrast, US bond yields eased across the curve, and it looks like gold is taking its cues from them for now.

Gold has now recorded a daily close above USD 1800.00, and more importantly, the 100 and 200-day moving averages at USD 1793.50 and USD 1790.25 an ounce. One must respect the price action in these circumstances, especially when it appears not to be driven by fast-money gnomes. Therefore, gold has formed a nice layer of support between USD 1790.00 and USD 1800.00 now followed by USD 1780.00 an ounce. Initial resistance is at USD 1814.00 followed by the formidable zone of daily highs between USD 1832.00 and USD 1835.00 an ounce.

Gold continues to slowly but surely, form what appears to be the second shoulder of a longer-term inverse head and shoulders pattern. In the bigger picture, a rise through USD 1835.00 an ounce, would trigger the multi-month inverse head-and-shoulders technical pattern and swing gold’s outlook back to positive, targeting a move back above USD 2000.00 an ounce.




Author: Jeffrey Halley

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