Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter


Are Euro-zone Rescue Efforts Too Late To Prevent A Global Recession?

Economics / Global Economy Sep 08, 2012 - 10:57 AM GMT

By: Sy_Harding

Economics Best Financial Markets Analysis ArticleEconomic growth continues to slow at an accelerated pace globally, not just in Greece and Spain, and other euro-zone countries in the headlines, but in the world’s ten largest economies of the U.S., China, Japan, Germany, France, the United Kingdom, Brazil, Italy, India, and Canada. The 17-nation eurozone as a whole is already in a recession. Many other nations are just barely keeping their heads above water.

A number of global stock markets saw the problems coming and are already in bear markets. The market of China, the world’s second largest economy, is down 32% over the last 24 months on concern that its economy is coming in for a hard landing. Japan’s market, the world’s third largest economy, has lost 19% of its value over the last 18 months, and in spite of the June rally is down 14% just since May. Brazil’s stock market is down 20% over the last 18 months as its previously booming economy slows significantly.

In the U.S., even though its stock market is at multi-year highs that might have one think its economy must be booming, the economy is just scraping along and slowing further, with GDP growing at just a 1.7% pace in the 2nd quarter, and corporations warning of still slower conditions ahead.

The problem, another stall in the recovery from the Great Recession of 2008, has been obvious all year. But those who could at least try to come to the rescue have been reluctant to do so again, perhaps because their previous rescue attempts were not lasting and they’re running out of ammunition.

Panicked by the market correction of April to June, in which even Europe’s strongest economy, Germany, saw its market plunge 16%, European Central Bank President Draghi issued his now famous promise that “The ECB will do whatever it takes to save the euro”.

Markets waited for six weeks, but the ECB finally revealed yesterday what those efforts will be - unlimited buying of the bonds of troubled euro-zone governments that request bail-outs.

It’s the ECB’s third bond-buying program in recent years. This one is more aggressive than the previous two and is given better odds of working to solve the euro-zone’s debt crisis.

But I was surprised the ECB’s “whatever it takes to save the euro” effort did not include cutting interest rates to also stimulate the eurozone economy.

Meanwhile, concerns are already rising that its announced program of unlimited bond-buying may even worsen the euro-zone’s recession, since the program requires governments that request the debt bailout to adopt and adhere to strict austerity measures in order to qualify for the bond-buying, including reducing government spending, and cutting wages, pensions, and services even further.

Meanwhile, in China, the hoped for aggressive economic rescue has not been forthcoming, with analysts expecting any major stimulus to be put off until after the new Chinese leadership takes over later in the year and gets a chance to act, probably not until early next year.

In the U.S., the Federal Reserve has already cut interest rates close to zero, and provided several rounds of aggressive bond-buying in the form of QE1, QE2, and last year’s ‘operation twist’. It has seemed reluctant to act again, saying only that it’s monitoring the situation and will take action if needed, while successfully fueling a stock market rally on that assurance.

As revealed in the minutes of its last FOMC meeting and Fed Chairman Bernanke’s recent speech from Jackson Hole, the Federal Reserve’s biggest worry is employment.

Over the last few weeks it looked like the Fed might get by with putting off action again. The employment picture seemed to improve dramatically since its last FOMC meeting. It was subsequently reported that 163,000 new jobs were created in July, much better than expectations, and this week’s ADP jobs report showing 201,000 new jobs created in August indicated the improving trend continued.

So the Fed may have been shocked when the Labor Department’s report on Friday showed only 96,000 new jobs were created in August, and the previous report of 163,000 new jobs in July was revised down to 141,000.

So now the pressure is back on the Fed to act at its meeting next week.

But does all the previous reluctance of central bankers to act have them so far behind the curve of a potential global recession that by the time the actions are announced, implemented and begin to have an effect, it will be too late? The ECB estimates it will be a month before it gets all the approvals it needs and can begin to implement its new bond-buying program. China’s central bank and the U.S. Fed have yet to even announce a new program.

It’s still a time to be cautious about investing in equities. Economic slowdowns worsened even as markets spiked-up in a rally since June fueled entirely by hope, a rally that already factored in much of what can be hoped for from the belated and in some cases still absent rescue efforts, a rally that has the market at multi-year highs, a feat usually accomplished only in times of booming economic conditions.

So, it’s not just that central banks are behind the curve, but that markets may be well ahead of not only the central banks, but economic prospects.

On the positive side, I like gold on which our indicators triggered a new buy signal (after being on a sell signal since February 29). And in the interest of full disclosure, I and my subscribers have a 20% position in the gold etf GLD.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2012 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - 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

6 Critical Money Making Rules