Recession till 2018?
In an era where forecasts by permabears have gotten ample attention and vindication, few are as disturbing as this: a world recession until 2018.
It comes from Eisuke Sakakibara, Japan’s former top currency official. He is known as “Mr. Yen” for his ability to move markets. Because Tokyo’s revolving-door politics often sends a new face to each Group of 20 meeting, he is one of the few Japanese constants in market circles. Traders may not know the latest finance minister’s name, but they know Sakakibara.
Recession Lasting Until 2018 Is Worth Exploring: William Pesek
By then I'll be 32...not good.
I think this guys is extrapolating what happened to Japan over the past 20 years to the world economy. I'm not convinced for a couple reasons. The whole the "world is being austere" is a big stretch. QE2 being let to run its course and the tax cuts aren't exactly signs of fiscal tightening. Sure, Europe isn't quite as loose as the U.S. but the PIIGS are the only ones really being forced to tighten their belts. China isn't trying to cool its economy off very hard either. I think rising yields and the commodity run-up we had will hurt the global economy in the short-term, but that will lead to a "risk-off" situations where commodities become affordable again and people plow back into Treasuries, giving us a sound basis for a recovery. We're talking a 6-9 month slowdown (not recession) at best in this scenario. But what do I know?
Please god no, I'm no economist but I'm thinking another year or two before we start really growing again.
Honestly I think we're right on the edge. Right now I don't think it will happen, BUT there are a ton of one off risk factors that could cause global shocks. In no particular order of importance:
1) Spain defaults and/or a Euro dissolution 2) Another major bank failure (like JPM and silver, but possibly real) 3) Escalating trade barriers internationally 4) Moody's downgrading the US credit rating (they warned of the possibility following the tax debate) 5) A commercial real estate crisis
And that's just off the top of my head. All sorts of fun things could happen right now to doom us all to this bs for years to come. Oh joy!
I sure hope so..
That whole
"There’s a single reason why Japan’s 10-year bond yields are below 1.3 percent and Asia’s No. 2 economy isn’t being downgraded. Since about 95 percent of Japan’s debt is held domestically, there’s no risk of capital flight."
is bullshit. Japan has been stuck with persistent deflation over time and that means that the 1.3% nominal rates are higher in real terms. There has been plenty of talk over the years about "zombie corporations" in Japan only able to keep trudging along because they can borrow money at rates near zero.
I want to say the lack of fact checking is terrible. However, the author mentions that
"Japan is a cautionary tale. On the surface, the 4.5 percent annualized increase in third-quarter gross domestic product looked promising. The detail, however, showed that deflation is worsening no matter how many yen the Bank of Japan churns into the economy. This is anything but a typical recession, and world leaders are too distracted to see it. "
So the author says there's deflation but doesn't think that affects the 1.3% nominal yield on their bonds.
I am disappoint!
do you guys think the market is overvalued right now? i have a lot of money invested, and i was eager to put more money in, however reading this kind of stuff kind of deters me. what do you guys think? investing still ok? ...and no, i do not like mutual funds, etfs, etc.
Depends how long you are...
I'd say the market is a little overvalued...
http://www.multpl.com/table
Fair value is typically 14 to 16, although the expectation of high future inflation can cause a rise in asset prices which distort this.
The market's in a gray area right now where I wouldn't be comfortable making a long term directional bet on the market either way. P/(10-yr-earnings) > 25 and I might consider shorting, P/(10-year earnings)
The extension of the tax cuts is only going to provide a short term fix that will provide very few jobs and kicking the whole deficit problem down the road. If we're going to add $900 B to the deficit, we should do it by rebuilding our infrastructure. China just broke another record for high speed rail. New Jersey just shut down plans to build a second Hudson River tunnel. Whatever happened to the great America mega-structure project?
Regardless, the deficit problem won't be resolved until (or unless) China allows its currency to adjust. There's just too great of a trade deficit.
On a side note, assuming those of us with jobs don't get laid off (which there's a damn good chance you will if your an analyst at an ibank), will having a job throughout a 10 year recession give us a leg up in the future?
One of the problems is that all the smart money is leaving the country. If you have more than 100k and you aren't heavily invested in emerging markets then you are going to miss out on serious growth.
Oh, and I forgot one to my "things that will ruin the world" list
6) Large scale municipal bond default. Illinois can't pay it's debts at 6 percent so it's coming up with a scheme where it takes out a loan to pay off its debts now and pays back financiers (Wall St.) at 12 percent (if they miss a payment). Chicago recently sold all its parking meters at firesale prices to pay off its debt which of course will hurt them in the long run. Don't even get me started on California.
Threat #6 is the most likely shoe to drop imo. It will be very interesting.
We are reaching the limits to growth (peak oil, anyone?). It also doesn't help that there is a huge long-term wealth transfer going on from the developed world to the developing world. I expect the global economy to be weak for a long time (with the US and other developed countries underperforming). Currency devaluation will make bonds a bad play. Safest plays will be commodities and commodities-related equities. The stupid retail money managers view these as "risky", but the smart money knows better, and money flows have started to show this. Once baby boomers start taking hits to their bond portfolio over the next few years, expect some sort of run on bonds and into commodities.
Disclaimer: I have about a mil in oil, energy stocks, etc. (could be viewed as a good thing too, since I put my money where my mouth is)
peak oil is a non sequitur.
In what way? Are you saying that it's not related to the topic at hand or that it's a fallacy? You're wrong on both counts...
Peak oil doesn't exist, never has. Technological development yields higher breakthroughs in energy production faster than energy supply falls. See all the stuff about natural gas shale that's been on the boards today. As prices get higher then the R&D that goes into energy discovery goes up until prices stabilize (roughly, it's not perfect ~ definitely speculators and cartels out there).
You are aware that there are quite a few petroleum engineers, CEOs of energy companies, and investors that disagree with you right?
The IEA stated in their most recent outlook that conventional crude peaked in 2006 (and they project conventional to continue declining going forward). The only stuff left is increasingly expensive, with low flow rates. (The IEA is one of the more conservative research groups and had been in your "peak oil does not exist" camp until this year...why do they keep lowering their future forecasts year after year?)
Prices will spike to force energy efficiency and demand destruction. That is not a pleasant process and leads to recessions.
I know quite a few petroleum engineers and although I am not a petroleum engineer myself, I have read 400+ page books on petroleum engineering. I find your comment quite laughable. For example, you mention shale gas. We've known about fracking and horizontal drilling for quite a while now, but the reserves were not economical when conventional gas production was plentiful. With conventional production decreasing these more expensive reserves become profitable (breakeven price on shale gas is $6 or $7 on current shale gas reserves being produced - current production is hedged via futures, but those hedges run out soon, so expect nat gas prices to jump to $6 or $7 in 2011 or 2012). Same thing with tar sands, deepwater oil, etc. (i.e. the breakeven price is higher) We've always known about these reserves and we will exploit them, but to think that they will provide us with oil at the prices and flow rates of the conventional giant fields (most of which are in terminal decline) is ridiculous.
(You will now rebut with a "the electric car and wind turbines will save us"...that is also incorrect...but this post is long enough as is)
the only thing that concerns me about emerging markets and gold is "every one says" it is a good thing
history has shows when every 1 agrees that X asset is good buy X asset usually takes a nose dive :/
alexpasch - http://en.wikipedia.org/wiki/Peak_oil#Criticisms
We have over two trillion barrels of oil in North America alone. And yes, it will be more expensive. But that will be the incentive for someone to come up with better ways of getting the oil. Or, maybe, just maybe, higher prices will lead to people driving more fuel efficient vehicles (which are the number one use of oil).
Doomsaying running around with head on fire "peak oil" advocates annoy and frustrate me.
There are some crazy people doomsaying (Matt Simmons was a big one, RIP), I disagree with them. The main solution is drastic increases in efficiency. Still, to take a belief that it shouldn't be a top concern shows ignorance with regard to just how important energy is to our economy and just how expensive/protracted the changing of our energy infrastructure is. Peak oil won't kill the economy like some of the crazies suggest, but it will put a serious damper on growth prospects and should lead to a much higher incidence/severity of recessions than if oil were plentiful/cheap.
Don't you see some sort of parallel between the low oil prices of the 90s and the economic prosperity of that era as opposed to the 2000s and its recessions and high oil prices? Sure, there are other factors, but the cost of energy inputs is extremely important.
The two trillion barrels in north america are overwhelmingly tar sands and oil shale. Saying that those types of reserves are a substitute for conventional crude is akin to saying that salt water is a substitute for fresh water (for drinking purposes). Yeah, they're both "oil", but similarities end there. Tar sands have huge energy costs associated with extraction, and the breakeven price is quite high (and will go higher with increased nat gas prices, as nat gas is used to create the steam used in the in situ refining and extraction). Oil shale is basically not economically feasible and probably never will be (it takes as much energy to extract as you get from the oil, because it's not conventional oil). There is also a huge issue of flow rates, we can't extract from these reserves as quickly as from conventional reserves. Not only will prices go higher just because of an increasing replacement cost, but decreased flow rates coupled with depletion of existing fields will lead to lower production year after year, even with higher prices. You can't take the naive view that higher prices will lead to more production. They will just go higher to force demand down (i.e. recession).
with majnoon field signed there are almost no more conventional discoveries of substantial size left on the planet but I think Alexpasch, you are ignoring the affect of research and development on production costs. Prior to the 1970's oil sands were unprofitable due to a mixture of low prices and costly production methods, however Oil Sands of the early 2000's can be profitable at prices as low as $42/barrel. In future, with new exploration and production techniques implemented these costs will go lower, not higher. Higher cost hydrocarbons will serve as an effective transititory fuel to biofuels.
there was a faily good article on precisley this situation happening in the future on a major business magazine but I cant find it, so I'll have to go with: http://www.businessinsider.com/does-peak-oil-even-matter-2010-12
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