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
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
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

4 Obvious Signs the US Economy Is Stalling—Here’s What to Do

Economics / US Economy Jul 03, 2017 - 04:53 PM GMT

By: John_Mauldin

Economics

BY STEPHEN MCBRIDE : Despite a surge in optimism after the election, nominal GDP growth in 2016 was just 2.95%. This makes 2016 the second-worst year on record since 1959.

And with key economic indicators flashing warnings signs, it looks like the US economy is heading toward big trouble rather than revival.

Here are four signs that paint the picture best.


Credit Demand Is Contracting

Across all the sectors of bank lending (business, consumer, and real estate), credit demand is falling. The chart below shows a sharp decline in consumer loan growth over the past three quarters.

Source: Haver Analytics, Gluskin Sheff

The pent up demand seems to be exhausted. Given that this economic expansion is now in its ninth year, it’s no surprise.

With consumption accounting for 70% of US economic activity, this will weigh heavily on growth.

Tax Receipts Turn Negative

Another indicator that signals the US economy is on a slippery slope is falling corporate tax receipts.

The chart below shows corporate receipts in April contracted most since 2009, when the economy was in midst of the Great Recession.

As Dr. Lacy Hunt, EVP of Hosington Investment Management and former senior economist for the Dallas Fed stated during his SIC 2017 presentation:  “This indicator has turned down prior to every post-WWII recession. It suggests that America’s corporations are experiencing a deterioration in earnings.”

The Fed Walks a Tightrope

While consumer demand and economic activity are trending downward, the Fed is tightening monetary policy, which exacerbates the negative effect.

Ten out of the last 13 tightening cycles have ended in recession. In fact, of the 18 recessions since 1913, all but one have been preceded by a tightening cycle.

And here’s why.

Higher interest rates increase the cost of credit, which reduces demand and weighs on economic growth. Dr. Lacy Hunt also made another good point regarding the Fed’s move: “When the Fed tightens, they are saying the economy is doing too well by our standards… we want the economy to have less money and credit growth and we want less economic activity. They are saying this at a time when the best economic indicators are in a downturn.’’

And the bond market seems to agree with Dr. Hunt that the Fed has got it wrong.

A Flattening Yield Curve

The Fed started this tightening cycle in December 2015. But three rate hikes later, the 30-year Treasury—the most economically sensitive Treasury bond—is down by 15 basis points.

As such, the yield curve has flattened considerably.

Source: Haver Analytics, Gluskin Sheff

A flattening yield curve indicates investors have little confidence in the economy and that the Fed’s tightening cycle is likely to lead to adverse economic consequences. In this scenario, bonds will rise and stocks fall.

Interestingly, if the Fed raises rates four more times, the yield curve would likely invert, which means long-term rates drop below short-term rates. It’s worth noting that the yield curve inverted prior to every recession since 1981.

With all that being said, how should investors position their portfolios today?

How to Invest Around Late-Cycle Themes

At the 2017 Strategic Investment Conference, chief economist and strategist for wealth management firm Gluskin Sheff David Rosenberg said investors should be investing around “late-cycle themes” given the current setup in the markets:

“Investors should be de-risking their portfolios and reducing their exposure to cyclical sectors today. Late-cycle investing means you want to step-up the quality of your portfolio: the ratings and the balance sheets you own.”

Download a Bundle of Exclusive Content from the Sold-Out 2017 Strategic Investment Conference

Get access to exclusive interviews with John Mauldin, Neil Howe and Pippa Malmgren from SIC, an ebook from renowned geopolitical expert George Friedman and bonus SIC 2017 content…

Claim your SIC 2017 bundle now!

John Mauldin 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