Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Economy Huge Reality Check Ahead?

Economics / US Economy Aug 12, 2012 - 07:03 AM GMT

By: Money_Morning

Economics Best Financial Markets Analysis ArticleShah Gilani writes: Let's try and be insightful today, shall we?

Equities have been rallying; we'll call it the summer rally.

Major benchmarks are only a few percentage points off their highs. It's all good, right?


I don't think so.

We could use the old "can't see the forest for the trees" adage, which means, sure, you can look at all the trees around you and see they're still standing, because you're in the middle of the woods. But you can't see the whole forest, because you're too flat on the ground and too deep under the canopy.

Let's rise above the treetops and market highs and look down, to get the big picture.

Here's what I see. There are too many trees to measure the health and height of each one. But I see something much simpler on a path through the woods that we're going to look at and draw our insights from.

Yes, I see a team of horses, yoked together, pulling a huge wagon up a steep, meandering slope.

One of the horses embodies central banks, banks, bankers and market players. The other horse embodies the markets: stocks, bonds, commodities, and real (estate) assets.

The large and heavy wagon they're pulling is the economy. It doesn't matter which one. Think of the U.S. economy, or the European economy, or the global economy.

Some of the stuff in the economy wagon includes horse parts, things like equity, fixed income and real assets, stuff like real commodities, too, not just the paper stuff.

Did I mention that the horses are yoked together? Did you notice that the horses are pulling the economy wagon?

"Don't put the cart before the horse" is another adage.

Well, here's what happened, at least as far as I can see from up here.

The wagon got too heavy. Mostly from real estate and paper instruments that ended up getting soaked when the leverage bubble, which got blown up by overuse of the low-interest rate pump, popped and rained on everybody's parade.

So the guys who own one of the horses in the team (did I say they were yoked together?) decided they were struggling mightily and could end up being dog food (they were already horse-whipped to near total collapse and death) decided to unhitch them from the wagon.

Who owns that horse? There are a bunch of owners, breeders, really. They run the Central Bank Stables and breed race horses as well as draft horses.

The other horse in the team, yoked to the CB Stables stallion, isn't a horse they own. She's a filly that they train, on account of the fact that they're trainers and jockeys too.

Either way, that other horse, because she can be bred for huge fees on account of her foals being worth a lot in the future, has to be taken care of too. Kind of like breeding "futures" you might imagine. Futures of wealth for the silent partners who actually control the goings-on at the CB Stables; yeah, those guys.

As it turns out, the wagon is stuck, and the team of horses has gotten ahead of themselves.

No one would ever advocate cruelty to animals, so they were cheered on by most people, even though most people were cheering grudgingly.

But here's the rub. They're a team, you know. And you can't hope the breeder's horse drops dead and the filly gets to run wild. They're yoked together. (Did I say that?) So if you want the filly to have a life, you have to go along with keeping the other horse alive.

At some point, the wagon is going to have to get hitched back up to the pulling horses, or it ain't going nowhere.

From above the trees, I see that wagon, which was holding its ground on the slope it was abandoned on, starting to slip. Did I say it was one big, heavy wagon?

Oh, I forgot one thing. That's because I almost couldn't see clear to the ground because of all those trees. But there's a long, very long, set of reins that still connects the wagon and the horses.

As that wagon starts to slip backwards, it won't matter how healthy those horses look and how far they've gone ahead of their heavy load. They're going to get yanked back, reined-in, and maybe broken.

You don't think so?

Have you seen what's weighing down the wagon? Haven't you seen it starting to slip?

The economy here in the U.S. looks like an old nag is pulling our giant rickety wagon.
Unemployment is at 8.3%. Real estate prices have been up in some areas. Up? Up is relative. Like The Doors sang, "I've been down so goddamned long, it looks like up to me." Foreclosures this month are up 6%, according to RealtyTrac. Consumers aren't spending, and what they're buying, they're back to buying on credit. Savings rates are back to non-existent levels. And we're facing that fiscal cliff thing.

How bad is the fiscal cliff?

First of all, people, it is real and it is not going to be addressed on any long-term basis. We will go to the edge of the cliff, look over, lose our national footing, and be saved (hopefully) by a last-minute, temporary "fix," which will be too little too late.

Want to know what's going to happen to our wagon then? Just look across the pond at Europe. That's where we're heading.

The U.K.'s (great Olympics, you lads and lassies!) industrial production numbers are now the worst in 20 years. At 97.3, they are down 2.5% from May to June. Their economy continued to contract through July. That makes three consecutive quarterly declines. Two quarterly declines in a row constitute a recession.

Italian GDP was down 0.7% in the second quarter after falling 0.8% in the first quarter. Year over year growth is down 2.5%. Italy is experiencing its fourth consecutive quarter of negative GDP growth. And about those bond yields... they're going to sink the country.

Germany, you know, the biggest economy in Europe, saw industrial production dip 0.9% in June, erasing some of the 1.7% upside they saw in May. Year over year IP is down 0.3%, and German government officials are saying they're seeing "growing signs of decline."

Spain? Oh, things there are just peachy. Spain, the Continent's fourth-biggest economy (Germany is 1, France is 2, Italy is 3, Spain is 4, and the Netherlands is 5) just notched its tenth month in a row of declining industrial production.

The Netherlands just announced IP fell 0.6% in June, from a lackluster May.

Greece? We won't even go there.

China? Slipping into darkness.

So, how did those horses get so far ahead? Oh yeah, that would be by manipulation. The same kind of manipulation that China, the ECB, and the Fed are ratcheting up again.

Can those horses break free of the reins that bind them to reality (it's the economy, stupid) and run wild?

Sure.

Just don't lose sight of the reality that it's the economy, stupid.

... Did I already say that?

Source :http://moneymorning.com/2012/08/10/what-i-see-ahead-for-economy/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in