These Dangers Loom Over The Fragile US Economy In The Next 12 Months
The U.S. and most of the world is at the threshold of what I would call a nexus point in history. There are establishment forces at play that seek to impose a permanent authoritarian presence within our nation in the name of Covid “safety.” This includes lockdown mandates and restrictions on economic participation for the unvaccinated (including being unable to keep a job).
At the same time, only 53% of the public has been fully vaccinated against Covid. A significant number of the unvaccinated seem likely to dig in their heels and will refuse to comply.
We are at an impasse. With incessant fear mongering over the latest covid variants and the government obsession with 100% vaccination, the pro- and anti-vaccine groups are squaring off . It is a conflict between those who see their submission to the vaccination as a badge of personal responsibility and civic-mindedness versus those who see it as merely an excuse for authoritarianism. Unless pro-vax people choose to stand down and walk away from the fight, our economic future will grow increasingly unstable.
This is the foreboding backdrop of our economic tale, and it is important to keep in mind that the technocratic exploitation of the covid non-crisis as a push for supremacy is going to color EVERYTHING that happens in our financial system from now on. You cannot talk about our economic condition without including the effects of the pandemic theater.
I believe that the next year in particular is going to be adrenalized and chaotic beyond what we have already seen in 2020-2021. Like I said, there are two sides of America that are now completely opposed in almost every way. Something is going to snap, and I suspect this will happen in 12 months or less.
The U.S. economy is itself an underlying disaster in the making and in many ways the Covid issue is a convenient distraction away from a much larger threat.
Let’s not forget that since the credit crash of 2007-2008 America and most other nations have been surviving on pure monetary deferment. That is to say, not a single problem unmasked in 2008 has been dealt with or solved by the central bankers in the 13 years since. All of the destructive factors were delayed by money printing rather than being fixed. Writing a new post-dated check to cover your last check only works as long as your creditor is willing to cooperate…
The pandemic response has conjured an even greater crisis because the shutdowns of vast parts of the service sector led to trillions more in stimulus just to keep an array of businesses from closing permanently, let alone the trillions of dollars that are STILL being printed to boost unemployment checks.
All of this monetary trickery is going to end, and when it does, there will be a fiscal reckoning beyond anything the world has seen in centuries.
Here are some of the most immediate dangers as I see them in the next 12 months, and what they mean for our future…
Covid unemployment boost is ending (but it’s too already late)
I have to say, I don’t think any government policy has hurt the U.S. economy more than the additional Covid benefits added to unemployment checks. With an extra $300 per week added to existing federal benefits there has been zero incentive for the jobless to find employment. This doesn’t even account for the additional money and benefits granted by various states. Why work at all when you can do nothing for months on end and get paid the same? This has triggered a desperate crisis in the small business sector in terms of finding employees to continue operations.
I have personally seen half the businesses in my region scramble for workers and stretch their resources thin just to survive. Ultimately, many companies have been forced to cut business hours by half because they just don’t have the people to stay open all week. There are now help wanted signs on the doors of every single business I come across.
Yet, bizarrely, there are still numerous mainstream media reports arguing that Covid unemployment checks should continue into the foreseeable future.
It is hard to say whether conditions will change, but for now the indication is that the federal government will be winding down boosted unemployment checks. What I suspect will happen is that certain state governments will react by bulking up on their already existing unemployment measures to offset the federal draw-down, and the businesses in these states will see the drought on employees continue. In the end many of these businesses will shut their doors for good, especially smaller outlets that are unable to keep up with the major corporate retailers that enjoy billions in stimulus to keep them afloat.
At this stage those help wanted signs will be replaced with “closing forever” signs and all those jobs will disappear in the blink of an eye. The federal cuts to unemployment checks are too little too late, I think, and there are no guarantees that they will remain in place considering reports of the “delta variant.”
Many establishments will try to hold out through the Christmas season, but there is already a war going on for the holiday employees needed to deal with the seasonal rush. Corporate outlets have the ability to offer larger bonuses and more incentives.
Small businesses will be crushed this Christmas.
Stagflation is becoming undeniable
I have been warning for years that when the economic destabilization of the U.S. happens it will come not in the form of deflation or standard hyperinflation, but stagflation, which is a kind of unholy marriage of the two.
The combination of rampant stimulus measures and helicopter money injected straight into the pockets of the unemployed resulted in a temporary consumer bonanza. Everyone was buying up everything they could get their hands on, resulting in some strange supply chain pressures and shortages, not to mention MUCH higher prices.
I have seen my personal costs jump around 20% in the past year alone, and I’m sure most other people are experiencing a similar inflationary drain. Anyone who does not already own a home is now priced out of the market in almost every state (with the exception of certain major cities where no one wants to live right now anyway).
Fuel and energy prices are through the roof, food prices are expanding monthly, and car prices are crippling. But this is only a fraction of the problem…
There will soon come a time when Covid stimulus measures will fizzle out, and unless President Biden gets his massive infrastructure bill passed the piper will soon need to be paid. This of course creates a whole new set of stagflationary issues as prices remain stuck in an inflated range but all that extra Covid cash dries up. One might assume that if no one is buying then prices will drop along with demand, but this is not the case under stagflationary conditions. We are already witnessing this in the housing sector, where sales have been dropping for the better part of this year but overall prices remain extremely high.
I suspect that stagflation will once again become a household word in the U.S., perhaps not this year but by early next year. I am seeing signals of dollar devaluation that are visible in necessities but also in manufacturing costs, shipping costs to the U.S. as well as retail “package shrinkage.”
If you have the cash now, I would suggest buying your essentials in bulk before the prices climb even higher next year. Buying now ensures you get the maximum purchasing power from your already-diluted dollars.
The Eviction Moratorium Is Ending And There Is Nothing The CDC Can Do About It.
The Centers for Disease Control and Prevention (CDC) has no authority whatsoever to enforce rules or prosecute and punish citizens. No one votes for these people and nothing in the Constitution of the United States grants them the authority to dictate economic or social guidance. But for some reason it has been deemed acceptable by the federal government to allow the CDC to demand mass business shutdowns and moratoriums on rental evictions. Multiple courts including the Supreme Court have ruled against the CDC moratorium but they continue to claim the power to fine any property owners that decide to press for evictions of tenants that have refused to pay for up to a year or more.
What I don’t understand is that there are millions of unclaimed jobs out there and both state and federal governments have been providing endless unemployment benefits. But there are still people who will not pay rent this month simply because the CDC has deemed evictions unsavory during a pandemic. The conditions do not justify this at all, but the CDC rules do not take reality into account.
I am seeing indications that many landlords are going to move ahead with evictions anyway soon, and with around 11 million renters far behind on payments, a firestorm is about to erupt. The fact of the matter is, the CDC and the federal government are ignoring the Supreme Court on this issue not because they care about the well-being of those 11 million people, but because without the moratorium in place the cold truth of our economic crisis will be much more obvious to the average person.
The one thing that the establishment hates more than anything is transparency, and they do not want Americans to realize the extent of the financial damage right under our noses. Unemployed people sitting at home, collecting checks and playing Xbox may not be productive members of society, but at least they don’t cause the kind of trouble the government worries about.
Hungry, homeless and unemployed people? They’re the catalyst for mass protests, anti-government revolts, even revolutions.
Another factor that I don’t think many people understand is that the moratoriums have created a fear environment in the property rental arena. Landlords will exit the rental business the first chance they get by selling off their properties. If your business relies on your ability to collect rents and you are restricted from doing this by the government, then your business is no longer a business, it is an involuntary charity.
The result will be the loss of millions of rental properties in the U.S., leaving no housing for low-income families who cannot afford a mortgage down payment. In essence, the CDC has created a perfect storm for the destruction of the rental market and a historic spike in homelessness.
Even with some courts blocking the moratorium, the damage has already been done and property owners will not wait around, fearing another moratorium in the future.
I predict that evictions will ramp up around Christmas time and peak in early 2022, and that homeless numbers will absolutely explode into 2022 as available rentals disappear across the nation.
Vaccine Passports Will Be The Death Rattle Of Small Businesses
Small businesses make up around 50% of the U.S. retail market and are a big part of jobs numbers. I find it less than coincidental that nearly every single action on the part of the government in terms of the Covid response has led to a retail apocalypse that has eclipsed the small business sector while keeping the corporate retail sector alive. The last nail in the coffin for smaller service providers will be vaccine passports, if they are allowed to take root.
Biden’s latest and predictable announcement of a vaccine passport executive order apparently applies only to companies with 100 employees or more, but this represents a large number of small to moderate businesses, and if Biden gets his way ALL businesses will be included eventually. I will be writing extensively on this in my next article.
Many retailers are already sounding the alarm over the fear of possible vaccine passports for customers because they know that they will lose at least half of their customer base in response. The enforcement of such rules would require extra costs that will grind down their profit margins. And let’s not forget that if a customer sneaks through security measures, that business might be held liable and fined into oblivion. It’s a lose/lose for business owners which means, again, that many thousands more businesses will close down.
America’s economy will be annihilated.
We all know that the government under Biden is not going to give up on vaccinations or the mandates. They will continue to press until they get what they want (or until the public stops them). Don’t get too comfortable in the relative calm that we have enjoyed until recently as far as Covid restrictions are concerned.
* * *
More insanity is on the way, so be prepared. In addition to liquidating your increasingly-worthless paper dollars on bulk quantities of your essential supplies, consider whether diversifying your savings with physical gold and silver is a smart move for you and your family. It’s a great comfort to know you can lay your hands on tangible items of actual value should you need to. Real money can’t be printed or inflated away. Real money doesn’t disappear when the lights go out. Because the lights always go out, eventually.
Weekly investment update – Transitory gets a boost
Recent rises in Covid cases are being monitored closely, not least for the possibility that a pickup in caseloads may affect reopening plans and crimp…
Recent rises in Covid cases are being monitored closely, not least for the possibility that a pickup in caseloads may affect reopening plans and crimp consumer confidence, capping the economic recovery. Brighter news from the US came this week in signs that inflationary pressures are now easing, vindicating the view of many central bankers.
Globally, daily new Covid cases have continued to ease and are now around 550 000 per day, led by an easing in infection rates in Asia and Africa over the past week.
In the US, infection rates have receded marginally to around 150 000 new cases a day, with hospitalisations reaching a plateau.
In China, after two weeks of close to zero transmissions, locally transmitted cases have risen, albeit just in one region. The country’s zero-tolerance approach to Covid-19 presents a downside risk to economic growth if transmissions pick up more broadly.
This point was underlined recently by the Singapore government’s decision to pause reopening plans after an increase in the caseload among the country’s 80% vaccinated population.
The Delta variant has already had a negative impact on consumer confidence and hiring in the US. This may well extend to August retail sales, which is scheduled for release on 16 September.
Sentiment among US consumers is expected to remain subdued through September. While infection rates appear to have eased, a more sustained reduction is probably needed before confidence rebounds.
Pace of US inflation slowed slightly in August
Data published on 14 September showed US consumer prices rose at a more moderate pace in August, suggesting that inflationary pressures associated with the economic reopening from Covid lockdowns are easing slightly after inflation reached a 13-year high in July.
The US consumer price index (CPI) rose by 5.3% in August from a year ago — just below the 5.4% reported previously. This was in line with the 5.3% consensus forecast. Month-on-month, price gains slowed to 0.3%. That is a significantly slower pace than the 0.9% jump between May and June, and a fall from the most recent 0.5% rise from June to July.
Core CPI (excluding volatile items such as food and energy) also decelerated. The monthly pace fell to 0.1%, marking the smallest increase since February. Over the last year, core inflation was up by 4% after a 4.3% rise in July.
Looking more transitory
The slowing of US inflation in August reflects a partial unwind of the large increases in the prices of used cars, transportation and hotel accommodation in late spring.
This supports the view that the inflation surprises of a few months ago would, in the language of the US Federal Reserve, prove ‘transitory’. As such, it will be welcomed by Fed chair Jay Powell.
Back to low-flation?
Few, however, ever believed that prices would continue to rise at nearly 1% a month indefinitely. The debate has always really been about what rate inflation would return to once the large demand/supply imbalances in sectors such as consumer services abate.
The real question is:
whether the US will see sustained inflation near or above 3% a year, or will the low-flation forces that dominated during the years before the pandemic return?
A key part of the answer to this question is housing prices. Housing is a major part (40%) of US core CPI and is correlated with the business cycle. The high weight means relatively small shifts in this component of US inflation can move the needle on the overall inflation outlook.
The Fed is hoping that inflation ultimately settles at a level a little above 2% once Covid moves into the rear-view mirror. A slightly higher rate of housing-related inflation than that seen before the pandemic might be a necessary part of that. Whether that slightly higher rate turns out to be 3.75% a year or 4.25% will matter a lot.
Supply chain distortions
In the near term, there are clearly still supply chain effects at work in the data. Assembly of new cars has been severely affected by a shortage of semiconductors, which has forced up the price of both new and used cars. Various other durable goods prices (e.g., furniture, TVs and the like), have risen due to Covid-related plant shutdowns in Asia and transportation cost pressures.
These factors look set to support higher inflation for at least several more months. Higher vaccination rates will be a key part of resolving these production issues.
News from the ECB
At its 9 September council meeting, the European Central Bank announced a moderate slowdown in the pace of asset buying under its pandemic emergency purchasing programme (PEPP), in line with market expectations. President Lagarde reiterated the view that inflationary forces in the eurozone were temporary in nature.
Details on the future of the PEPP are expected in December. The programme may end next March, perhaps replaced by an expanded and more flexible asset purchase programme.
With prolonged monetary accommodation maintained by the ECB, eurozone front-end interest rates are well anchored.
Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).
Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
Writen by Andrew Craig. The post Weekly investment update – Transitory gets a boost appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.inflation monetary markets reserve interest rates fed central bank inflationary
What is the Federal Reserve?
The Federal Reserve is the central bank of the United States and is considered to be the most powerful financial institution in the world.
The post What…
The Federal Reserve, also often known as the Fed, is the central bank of the United States and is considered to be the most powerful financial institution in the world. The Federal Reserve was founded in 1913 to provide the US with a safe, flexible and stable monetary and financial system.
The purpose of a central bank is to create a financial institution that has privileged control over the production and distribution of money and credit for the nation or group of nations that it serves. Other examples of central banks include the Bank of England, the European Central Bank and the Swiss National Bank.
How the Federal Reserve works
The Federal Reserve is composed of 12 regional Federal Reserve Banks that are each responsible for a specific geographic area of the US. They are:
- Federal Reserve Bank of Boston
- Federal Reserve Bank of New York
- Federal Reserve Bank of Philadelphia
- Federal Reserve Bank of Cleveland
- Federal Reserve Bank of Richmond
- Federal Reserve Bank of Atlanta
- Federal Reserve Bank of Chicago
- Federal Reserve Bank of St. Louis
- Federal Reserve Bank of Minneapolis
- Federal Reserve Bank of Kansas City
- Federal Reserve Bank of Dallas
- Federal Reserve Bank of San Francisco
There are two main objectives of the Federal Reserve, to foster economic conditions that achieve stable prices and maximum sustainable employment. The duties of the Federal Reserve can be further categorized into four key areas:
The Federal Reserve was founded in response to the financial panic of 1907. Prior to its inception, the US was the only major financial power without a central bank.
- Conducting national monetary policy by influencing monetary and credit conditions in the US economy to ensure maximum employment, stable prices, and moderate long-term interest rates.
- Supervising and regulating banking institutions to ensure the safety of the US banking and financial system and to protect consumers’ credit rights.
- Maintaining financial system stability and containing systemic risk.
- Providing financial services, including a pivotal role in operating the national payments system, depository institutions, the US government, and foreign official institutions.
The organizational structure of the Federal Reserve consists of seven members on the Board of Governors. Each is nominated by the president and approved by the US Senate. A governor can only serve a maximum of 14 years on the board and their appointment is staggered by two years.
It is also dictated by law that appointments of governors must represent broad sectors of the US economy. In addition, each of the 12 Federal Reserve banks has its own president.
The Board of Governors are responsible for setting reserve requirements, the amount of money banks are required to hold to meet the demands of sudden withdrawals. They also set the discount rate, which is the interest rate the Federal Reserve charges on loans made to financial institutions and other commercial banks.
Central banks across the world play an important role in quantitative easing to expand private credit, lower interest rates and drive investment and commercial activity through FOMC decision making.
Quantitative easing is used to stimulate economies during periods of uncertainty such as recessions when credit is thin on the ground. An example of when quantitative easing was used was during and following the 2008 financial crisis.
Advantages of the Federal Reserve
The advantages of the Federal Reserve include:
During times of recession and periods of uncertainty, the Federal Reserve can help remove panic and provide help to financial institutions and their depositors in times of severe economic crisis.
Good risk containment system
The Federal Reserve regularly runs checks on the nation’s banks and financial institutions. It runs stress tests and reviews financial statements to make sure that the public is dealing with institutions that are in good financial standing, and are not overloaded with risk.
Disadvantages of the Federal Reserve
The disadvantages of the Federal Reserve include:
Not completely transparent
Many believe that private interest and lobby groups have significant influence over the Federal Reserve, allowing individuals to benefit rather than actions that benefit the whole society.monetary markets reserve policy interest rates fed central bank monetary policy
What is Fundamental Analysis?
Fundamental analysis is a method that is used to measure a security’s intrinsic value by examining and analyzing related economic and financial factors.
Fundamental analysis is a method that is used to measure a security’s intrinsic value by examining and analyzing related economic and financial factors. These can include macroeconomic factors such as the state of the economy and current industry conditions to microeconomic factors like how effectively a company is managed.
The purpose of fundamental analysis is to determine a number that investors can compare with a security’s current price to inform them whether it is overpriced or underpriced. Fundamental analysis is considered to contrast technical analysis which focusses on historical market data including price and volume.
How fundamental analysis works
Experienced fundamental analysts can identify buy or sell signals, calculate a security’s intrinsic value and assess factors that could impact the value of an asset.
Even at the most basic level, a fundamental analysis strategy will include the following primary factors to assess the security:
- The structure and revenue of the company
- Growth of revenue in recent years
- Profit made by the company
- The debt structure of the company
- The company’s rate of turnover
- Employee management and managements approach to employees
Fundamental analysis can help investors determine whether to buy or sell an asset by looking at public data.
Types of fundamental analysis
The fundamental variables used in fundamental analysis can be categorized in two ways: quantitative and qualitative.
Quantitative fundamentals are typically any variables that can be measured or expressed in numbers. This type of fundamentals is useful if you are comparing securities in the same asset class or industry. Examples of qualitative fundamentals include P/E ratios, revenue and current liabilities – all of which can be found in a company’s financial statements.
Qualitative fundamentals are anything that cannot be measured or expressed in numbers. These can include trends, a country’s media presence or a company’s board of directors. These factors are driven by opinion and can be harder to compare.
Although each requires a different approach, both are equally as important to complete a full analysis of a company’s share price.
The approach fundamental analysts can be either top-down or bottom-up. The top-down approach concentrates on the qualitative fundamentals first and then digs deeper into the numbers, whereas a bottom-up approach looks at the quantitative fundamentals first and then at the macroeconomic and microeconomic factors.
Advantages of fundamental analysis
The advantages of fundamental analysis include:
Fundamental analysis looks at both the financial performance of a company as well as other factors that could affect the value of its share gives a comprehensive and detailed analysis, enabling investors to make informed decisions.
This type of analysis can identify long-term opportunities for investors as it considers multiple areas that can impact the stocks and securities value.
Can highlight early warnings
Undertaking fundamental analysis can highlight early warnings and provide insights into the effect of fiscal and monetary policy and the direction of global markets.
Disadvantages of fundamental analysis
The disadvantages of fundamental analysis include:
Can be time-consuming
The process of conducting fundamental analysis can be time-consuming. As a detailed method of analysis, it involves a variety of approaches that can take more time than other analytical methods.
Following on from the previous point, the amount of time fundamental analysis takes could lead to missed opportunities where an investor needs to make a quick investment decision. In these instances, investors should look at alternative analysis methods.
As this method of analysis considers all the micro and macro factors together and analyzes them simultaneously, it can become complicated and subjective. Placing a numerical value against different factors will usually be a combination of experience and personal biases.monetary markets policy monetary policy
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