Calafia Beach Pundit

The GDP figures out today contained comprehensive revisions to previously-released data, but nothing at all to suggest that the recession didn’t end a month or so ago. As the first chart shows, the swiftness of decline moderated in the next quarter significantly. As the next chart shows, money velocity (defined as nominal GDP divided by M2) has all but stabilized, dropping only 0.4% in the second quarter.

In short, the overall economy has all but completed its healing process. Money that was hoarded is currently slowly being released. Going forward, the economy will have strong tailwinds at its back, as inventory reduction slows, net exports continue to improve, and velocity starts to go up. Positive growth in today’s one fourth is very likely now.

The currency markets began to sense all of this back in March. Back early March the marketplace was priced to the expectation that the overall economy was going to fall off a cliff, with substantial bankruptcies, deflation, despair and common unemployment sweeping the country and the world. With the economy now having recovered its balance, the market has been forced to reprice for a less dismal outlook.

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That’s why I rely different proportions of market evaluation. Recession: There is absolutely no sign of a US recession on the horizon. Overly aggressive Fed tightening: You’ve got to be kidding me! Contrast the current Fed with 1987, in Sept to defend the Money when the Given tightened twice. War or revolution resulting in a permanent lack of capital: How are those Confederate bonds doing, or those Tsarist Russia railway bonds? The last two causes aren’t an issue right now. So let me focus on the potential risks of the recession.

Scott Grannis sees no signs of a tough economy from the credit markets. Today, money is abundant and resources are abundant. Even energy is abundant, because its price has fallen by over 50% in the past 12 months. Corporate earnings are near record highs, the supply of labor is practically unconstrained, energy is suddenly cheap, and productive capacity is relatively abundant.

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This adds up to a lot of room for maneuver and incredibly little reason for the economic engine of development to shut down. New Deal democrat arrived to a similar, but more nuanced summary. He maintains a weekly watch on the high frequency financial indicators and he divides them into long leading, short leading and coincidental indicators.

This week like the other day highlighted the difference between those servings of the US economy most subjected to global forces, which have all switched negative, and the ones most insulated from global problems, which are all positive, and even strengthening. I suspect that the world, all together, is within recession.

The American overall economy and consumer remains strong. This is actually the relative earnings of the buyer Discretionary sector and some of its components relative to the SPX. Apart from Media, which is underperforming, will this look like the market is worried about the consumer? The main way to obtain market angst is the slowdown coming from China and its results on global development. China’s overall economy isn’t as vulnerable as it may look, regarding to an exclusive survey from a New York-based research group that says it’s a myth the nation’s slowdown is intensifying.