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Page added on February 5, 2016

World economy seems trapped in ‘death spiral’

The global economy seems trapped in a “death spiral” that could lead to further weakness in oil prices, recession and a serious equity bear market, Citi strategists have warned.

Some analysts — including those at Citi — have turned bearish on the world economy this year, following an equity rout in January and weaker economic data out of China and the U.S.

“The world appears to be trapped in a circular reference death spiral,” Citi strategists led by Jonathan Stubbs said in a report on Thursday.

“Stronger U.S. dollar, weaker oil/commodity prices, weaker world trade/petrodollar liquidity, weaker EM (and global growth)… and repeat. Ad infinitum, this would lead to Oilmageddon, a ‘significant and synchronized’ global recession and a proper modern-day equity bear market.”

Stubbs said that macro strategists at Citi forecast that the dollar would weaken in 2016 and that oil prices were likely bottoming, potentially providing some light at the end of the tunnel.

“The death spiral is in nobody’s interest. Rational behavior, most likely, will prevail,” he said in the report.

Crude oil prices have tumbled by around 70 percent since the middle of 2014, during which time the U.S. dollar has risen by around 20 percent against a basket of currencies.

The world economy grew by 3.1 percent in 2015 and is projected to accelerate to expand by 3.4 percent in 2016 and 3.6 percent in 2017, according to the International Monetary Fund. The forecast reflects expectations of gradual improvement in countries currently in economic distress, notably Brazil, Russia and some in the Middle East.

By contrast, Citi forecasts the world economy will grow by only 2.7 percent in 2016 having cut its outlook last month.

Overall, advanced economies are mostly making a modest recovery, while many emerging market and developing economies are under strain from the rebalancing of the Chinese economy, lower commodity prices and capital outflows.

Stubbs added that policymakers would likely attempt to “regain credibility” in the coming weeks and months.

“This is fundamental to avoiding a proper/full global recession and dangerous disorder across financial markets. The stakes are high, perhaps higher than they have ever been in the post-World War II era,” he said.

Just 151,000 new jobs were created in January in the U.S., in the latest sign that the world’s biggest economy is slowing. Economists are concerned about an industrial or manufacturing recession in the country, following some warnings from companies in earnings seasons and recent weak manufacturing activity and durable goods orders data.

However, some analysts say markets are overegging the prospect of a global slump.

“Many markets are now pricing in a significant probability of recession and when we talk about recession, we’re talking particularly about a U.S. recession. Do you think that is likely or not? To me, the odds are too high; the market is pricing too high a probability,” Myles Bradshaw, the head of global aggregate fixed income at Amundi, told CNBC this week.

CNBC

43 Comments on "World economy seems trapped in ‘death spiral’"

twocats on Fri, 5th Feb 2016 11:53 am

I’m assuming this is a pattern: Deny Reality, Claim that Chances of Recession are Low, and then when it becomes clear months and months later that at the time those assertions were being made THE ECONOMY WAS ALREADY IN RECESSION. So that by the time the Headline Happens the market has already bottomed out and in a panic at the dreaded Recession word, retail investors throw in the towel at the bottom.

http://mishtalk.com/2016/02/04/recession-has-arrived-factory-orders-decline-2-9-negative-revisions-inventories-rise/

Davy on Fri, 5th Feb 2016 12:06 pm

The economic Seneca cliff is near. China and the US are set to see private credit stall. This will be the end game for growth and it is very near. Who knows how this will play out but it will not be status quo growth we have all known all of our lives.

http://charleshughsmith.blogspot.com/2016/02/the-chart-of-doom-when-private-credit.html?m=1

ghung on Fri, 5th Feb 2016 12:22 pm

Citi: Fear the ‘oilmageddon’ recession

“Financial markets are trapped in a “death spiral,” according to analysts at Citigroup.

The bank’s research team described a “negative feedback loop” in the global economy and across financial markets. It is fueled by strong dollar, lower commodity prices, weak trade and declining growth in emerging markets.

The four forces are interconnected and present central banks with the difficult task of fighting deflation and staving off another global downturn, the bank said in a report, released Friday.

If the loop continues, Citi warns, the world could slip into “significant and synchronized” global recession.

The bank even invented a new term for its doomsday scenario: “oilmageddon.” “

Declining growth? Just in ’emerging markets’?

GregT on Fri, 5th Feb 2016 12:23 pm

“Many markets are now pricing in a significant probability of recession and when we talk about recession, we’re talking particularly about a U.S. recession.”

So if the US entered into a recession in ’08, and there is still daily talk of a recovery from that recession, despite every financial slight of hand in the book, does that not mean that the US is still in recession? Or does the recession need to get continually deeper to still be considered a recession?

onlooker on Fri, 5th Feb 2016 12:26 pm

“I’m assuming this is a pattern: Deny Reality, Claim that Chances of Recession are Low, and then when it becomes clear months and months later that at the time those assertions were being made THE ECONOMY WAS ALREADY IN RECESSION. So that by the time the Headline Happens the market has already bottomed out and in a panic at the dreaded Recession word, retail investors throw in the towel at the bottom.” Yes it seems a little fishy like their gaming investor psyche to gain the the lead advantage and withdraw before the bottoming out. Ah the pitfalls of being a run of the mill investor.

Pennsyguy on Fri, 5th Feb 2016 1:26 pm

Ladies and gentlemen this is the captain:
The severe bow list is normal. Please return to your cabins to watch a video or partake of the open bar while the crew and I test the lifeboats in a normal drill. Have a pleasant evening.
All is normal. Honest.

onlooker on Fri, 5th Feb 2016 1:40 pm

Penns, or as the English say “Stay calm and carry on”

Davy on Fri, 5th Feb 2016 1:49 pm

Markets are smoking red today.

Lawfish1964 on Fri, 5th Feb 2016 1:49 pm

That article is so full of internal contradictions, it’s not even worth reading.

Apneaman on Fri, 5th Feb 2016 2:52 pm

Lawfish, I thought lawyers were supposed to be trained up in argument?

Try this one – you can dismiss it with a hand wave too.

Fires Rage, Words Fail

“How bad it is in the United States:

One verse that has been sung for years now by the “Don’t Worry, Be Happy” Chorus is that we are converting to a service economy, in which half of us will serve meals, keep house and otherwise cater to the other half, and that will work fine. But now — just now — the malaise that has been eating at all the other economic enterprises of the country has attacked the restaurant industry. “If services stumble too,” observes a writer on David Stockman’s website, “there truly is nothing left.”

Another verse from the aforementioned Chorus: We may not make much anymore, but we sure move stuff around, and that employs a lot of people and keeps the economy chugging along. Not so much anymore. “The Transportation Recession Spreads,” says Wolf Richter of WolfStreet, with the subhead “Hope came unglued all over again.” Orders for new 18-wheeler trucks have been falling since September of 2015, because of declining freight volumes, and after a slight recovery in December (hence the hope), plummeted nearly 50% (year-to-year) in January. Rail freight is experiencing a similar, vertigo-inducing slump.

American jobs of all kinds are being vaporized at a rate not seen since the Great Recession got traction in 2009. Just in January, layoffs quadrupled. See this partial list of job cuts so far this year, and an assessment of the mass layoffs just ahead. Every month the government issues, and the “Happy” Chorus extols, monthly reports lauding robust job-creation and the continued low (seasonally adjusted, statistically weighted, seasoned-to-taste) unemployment rate, while ignoring the gut-wrenching disappearance of hundreds of thousands of people from the job market. These people, six million or so of them now, are not unemployed. They are vanished.

The U.S. oil industry, which was promoting itself just a few months ago as the progenitor of a new American Revolution, of a return to American energy independence, and on, and on — is a smoking ruin. Shale drillers are in the process of reporting losses of about $15 billion for 2015; reductions of 25 per cent and more in their balance sheets because of devalued oil; and levels of debt that forced 42 oil companies into bankruptcy last year and will drive under many more than that this year. Nor is the carnage limited to the shale patch; from Exxon down, Big Oil is experiencing shrinking profits, tumbling stock prices and credit ratings.

As glum as the situation and the prospects are nationally, they are even worse abroad — for China, Russia, Brazil, Venezuela, Canada and much of Europe and Asia. (Please, valued commenters, find me a country that is doing well, with rising employment and wages, a stable currency, manageable debt, decent health care and security for its citizens. Let’s write about it and then move there. Assuming it’s on this planet.)”

http://www.dailyimpact.net/2016/02/05/fires-rage-words-fail/

Another Northwest Resident on Fri, 5th Feb 2016 6:20 pm

“That article is so full of internal contradictions, it’s not even worth reading.”

Well it is from CNBC – hardly a trusted news source. But I’m curious what examples of internal contradictions you’re referring to?

Northwest Resident on Fri, 5th Feb 2016 7:05 pm

“Rational behavior, most likely, will prevail”, he said…

Until that time, wishful thinking will continue to prevail.

Davy on Fri, 5th Feb 2016 7:14 pm

“Four of America’s Shale Gas Plays are Now Void of All Drilling”
http://www.bloomberg.com/news/articles/2016-02-05/four-of-america-s-shale-gas-plays-are-now-void-of-all-drilling

“Drilling has ground to a halt in two gas basins in Oklahoma, along with the Fayetteville reservoir in Arkansas and the Niobrara formation in Colorado and Wyoming, data from Baker Hughes Inc. show.”

Bloomer on Fri, 5th Feb 2016 11:29 pm

Demographics and low wages are playing a large role to the sluggish global economy. The Japanese economy was the first to sink into the decades long doldrums, as they have the oldest population. Next Europe and now as we are seeing the greying of America.

Older folks don’t spend as much. Couple this with stagnate wage growth and huge personal debt loads, consumption is waning. Simply speaking people either don’t need or can’t afford all that crap that is being manufactured.

After 30 years of supply side economics, where input cost and wages were slashed to the bone, we now have demand destruction. The final result of the race to the bottom, will be long-term tepid growth and wealth destruction

Truth Has A Liberal Bias on Sat, 6th Feb 2016 12:23 am

Hey if this is collapse maybe the ETP model is right after all.

Haha just kidding. That bullshit idea is the most retarded load of horse shit I’ve ever wasted my time looking at. I think the only dude that “gets it” is Futilitist and he’s a fucking moron.

http://www.sciforums.com/threads/the-etp-model-has-been-empirically-confirmed.152487/page-3

GregT on Sat, 6th Feb 2016 12:37 am

“That bullshit idea is the most retarded load of horse shit I’ve ever wasted my time looking at.”

If you haven’t been able to figure it out yet, you likely never will, so stop wasting your time, and move on.

GregT on Sat, 6th Feb 2016 1:24 am

“I think the only dude that “gets it” is Futilitist and he’s a fucking moron.”

After reading through that thread, it sounds more like Futilitist is the only one who ‘gets it’, and he is the one who is dealing with a bunch of complete morons.

Northwest Resident on Sat, 6th Feb 2016 1:35 am

The ongoing worldwide collapse in financial stocks provides powerful support for the bursting global Bubble thesis. After a brief respite, this week saw contagion effects return with a vengeance. Last year’s commodities and EM downfall anticipated the faltering Chinese Bubble. These days, “developed” markets have begun to discount the vulnerability of Europe, the U.S. and the rest of the world to Bubble contagion effects originally emanating from the China/commodities/EM downturns. The dominos have started falling.

Few are yet willing to accept the harsh reality that the world has sunk back into crisis. The VIX ended the week at a somewhat elevated but non-crisis 23.38. Credit spreads have widened meaningfully but for the most part remain at a fraction of 2008 crisis levels. Indeed, markets remain hopeful that “whatever it takes” central banking is waiting in the wings to trigger rallies at the moment things turn disorderly. My view that crisis has reemerged is based on the analysis that de-risking/de-leveraging dynamics have reached a point of self-reinforcing momentum beyond the control of central bank policies. In short, The Adjustment Cycle has commenced and there’s little left at this point to hold it back.

A multi-decade Credit Bubble is coming to an end. The past seven years has amounted to an incredible blow-off top – China; EM; global government debt; “whatever it takes” central bank inflationism; QE infinity; zero and now negative rates; a $3.0 TN hedge fund industry; a $3.0 TN ETF complex; unprecedented global corporate bond excess; historic M&A, stock buybacks and financial engineering; derivatives Bubble resurrection; and tech and biotech Bubbles 2.0 (to name only the most obvious). Importantly, global financial and economic imbalances – already unmatched by 2008 – went to even more precarious extremes.

http://creditbubblebulletin.blogspot.com/

There’s bullshit and there’s fact — plenty of both on this forum.

Apneaman on Sat, 6th Feb 2016 1:43 am

Oil market spiral threatens to prick global debt bubble, warns BIS
An ‘illusion of sustainability’ has blinded borrowers and debtors, lulling them into a false of security. The BIS says liquidity is now drying up

http://www.telegraph.co.uk/finance/oilprices/12143304/Oil-market-spiral-threatens-to-prick-global-debt-bubble-warns-BIS.html

Apneaman on Sat, 6th Feb 2016 1:49 am

Tech-stock wreck destroys $529B this year

“The bad year for stocks is getting worse by the minute – and tech investors are feeling the brunt of the pain.

The 462 information technology stocks in the broad Russell 3000 index have shredded a total of $529 billion this year thanks to their average decline of 14%, according to a USA TODAY analysis of data from S&P Capital IQ.”

http://www.usatoday.com/story/money/markets/2016/02/05/tech-wreck-destroys-514b-year/79875316/

peakyeast on Sat, 6th Feb 2016 4:17 am

Little by little the buffers in the system are eaten away and useless functions cut away…

Eventually everything is optimally fragile (or economically optimized) and just the briefest smallest disturbance will topple and crash everything.

theedrich on Sat, 6th Feb 2016 4:29 am

“Just 151,000 new jobs were created in January in the U.S., in the latest sign that the world’s biggest economy is slowing.”

No problem! Merely keep importing millions more “refugee” sludge from the Tercer mundo and things will be fine. They will feed us, take care of our landscaping and housecleaning, our needs for prostitution, drugs and other niceties. After all, econorefugees are the backbone of America.

Never mind the costs, Whitey. Our political nobility will hide them so you won’t see them until it’s too late. And your great-grandchildren will pay for them in debtor’s prisons.

To be sure, it does seem that some of the populace has been disturbed in its sleep by the general impoverishment. Donald Trump on the right and Bernie Sanders on the left have been attracting a lot of attention by pointing out that the political process has been hijacked by zillionaire organizations and individuals. Wary of any murmurings among the plebs, Georg Sörös, that philanthropic Hungarian Jew who has only the welfare of Americans at heart, has just contributed a boatload of money to Hotflash Clitory, her of the regressive wing of the Demonic Party, an anti-male creature who would never, ever be influenced by such beneficence.

Since except for Trump, both the political right and political left are irrevocably committed to importing all the dark insects the planet has to offer, to say nothing about exporting every possible job to lands with 15¢/hour labor costs, our fate has already been sealed.

Whitey has long opted for genosuicide. This can be seen in the arts, in literature, in the contempt of everything traditional, in the widespread redefinition of subhuman criminality as a cultural strength, to say nothing of the increase in slovenliness and urban decay everywhere.

When Citi says that “The global economy seems trapped in a ‘death spiral’ that could lead to further weakness in oil prices, recession and a serious equity bear market,” they are talking only about the beginning of a permanent decline. We are already entering upon a “soft” dictatorship in the U.S.; Europe and Canada (to say nothing of Asia) have already embraced Marxism with a vengeance. Must keep the proles in line with exemplary punishments and control of the media.

Snore on, Whitey. Your masters are already preparing Soylent Green for you.

GregT on Sat, 6th Feb 2016 4:58 am

“Whitey has long opted for genosuicide. This can be seen in the arts, in literature, in the contempt of everything traditional, in the widespread redefinition of subhuman criminality as a cultural strength, to say nothing of the increase in slovenliness and urban decay everywhere.”

Whitey not so smart eh theedrich, contrary to your delusional narrative. Choose another more intelligent race to support, or seal your fate as a member of the genosuicidal race. Us white apes are committing suicide for a reason thee. We are the weakest, least intelligent race. We’re done, because we fucked up really bad.

onlooker on Sat, 6th Feb 2016 7:14 am

testing

makati1 on Sat, 6th Feb 2016 7:55 am

“The Day the Dollar Died.”

If you are an American and have not read this novel, written in 2009, you should. It is 170 pages long. I came across the first 40 pages in my documents file today and looked up the rest of the novel, which is now online free.

http://johngaltfla.com/wordpress/2012/05/20/the-day-the-dollar-died-returns/

“Updated July 18, 2011 Almost two years ago I created this work not to become an author, but originally as a single blog posting as a work of fiction to warn my friends that the entire system is indeed a house of cards that could be crashed with little or no notice. The disaster which we faced in 2008-2009 was averted temporarily yet once again at this moment in history,the world finds itself on the brink, with the European Union facing collapse and the United States displaying further signs of economic and financial instability.

The nation is crumbling around us. People have been unemployed now for over four years and the response of the government and political elites is to ignore them, stop counting them, and now blame these poor souls for their misfortune, even though millions of them would be quite happy to wield a hammer, clean a bathroom, or even do one of those jobs “Americans won’t do.”

The initial entry evolved from just a somewhat disjointed and grammatically mangled work of a blog entry into an often duplicated yet never equaled work, copied by some in print and video. More power to them for exercising their ability to profit from my idea.

As we move forward, the dates in this work may no longer be valid, but fast forward to the current era as the blog entry format was retained for the flavor of the story and so as to provide readers a moment to think if this could start tomorrow, next month, or early next year. No one knows but the banksters and their plans are in motion to save their system and sacrifice the masses like pigs at a bacon factory.

I pray anyone who has never read this takes a moment to reflect and understand that it will not take much for the events contained within to change from fiction to a dangerous reality with little if any warning.”

Apneaman on Sat, 6th Feb 2016 1:38 pm