Central Perk: 25 sept. 2015

vineri, 25 septembrie 2015

Mish's Global Economic Trend Analysis

Herman Stekler Award for Bold, Inaccurate Recession Forecasting: 2015 Lakshman Achuthan of ECRI; Mish 2016?
Market Rallies then Fades on News Yellen Expects Hikes This Year; Futures Still Imply No Hikes
Tracking the Implosion of Brazil; Be Careful of What You Wish; Perfect Storm; Email from Brazil; More Intervention Madness

Herman Stekler Award for Bold, Inaccurate Recession Forecasting: 2015 Lakshman Achuthan of ECRI; Mish 2016?

Posted: 25 Sep 2015 12:59 PM PDT

I received a nice email today from Prakash Loungani. He gave a presentation at the Federal Forecasters Conference yesterday. His presentation was on the inability and unwillingness for forecasters to predict recessions.

Loungani says that to get forecasters to predict recessions (even inaccurately) we should have a Stekler Award for Courage in Forecasting. The award would be in honor of noted forecaster Herman Stekler who has always insisted that forecasters should predict recessions early and often and that he himself has predicted 9 of the last 5 recessions.

The 2015 award would go to Lakshman Achuthan of ECRI, who called for a U.S. recession in 2012 in September 2011. ECRI recently admitted that the call had been a false alarm but gave a detailed and useful explanation for why it made the call.

I am in the running for the 2016 award because in January, I predicted that Canada and the U.S. would slip into recession this year.

The slides are quite funny.

Click on the right and left arrows, not the down arrow.

Link if slideshow does not play. Herman Stekler Award for Inaccurate Recession Forecasting

Related Links

January 21, 2015: Canadian Recession Coming Up: Yield Curve Inverts Following Unexpected Rate Cut; Loonie at Six-Year Low
January 31, 2015: Canada in Recession, US Will Follow in 2015
September 2, 2015: Canada in Recession with Two Consecutive Quarters of Negative Growth

Mike "Mish" Shedlock

Market Rallies then Fades on News Yellen Expects Hikes This Year; Futures Still Imply No Hikes

Posted: 25 Sep 2015 12:16 PM PDT

Stocks Rallied a bit today on news that Yellen still expects a hike this year, but have since given up those gains.

S&P 500 10-Minute Chart

Reuters reports Wall Street Up on Yellen Comments; Health Stocks Drag Nasdaq

U.S. stocks were higher in early afternoon trading on Friday after Federal Reserve Chair Janet Yellen said she expects interest rates to be raised this year, easing concerns about slowing global growth and prompting a rally in bank shares.

However, the continuing selloff in health stocks and a drop in Google's shares due to a regulatory investigation limited gains on the Nasdaq.

Yellen said on Thursday that the Fed does not expect recent global economic and financial market developments to significantly affect its policy.

If the above chart holds the story after the closing bell will look like this: "Wall Street Down on Yellen Comments".

Futures Still Imply No Hikes

A quick check of CME Fedwatch shows the Fed Fund Futures gave a big yawn to the notion Yellen is going to hike.

Fed fund futures did not change a bit. The CME still has the probability of a hike at 35%.

Bear in mind, those odds reflect a quarter point hike. I am of the opinion the Fed will hike in eighths, or possibly quarter point ranges starting not with a hike from the current 0%-.25% to .25%-.50%, but rather a hike to the range .125%-.375%.

That of course assumes the Fed will hike at all. If Yellen wanted to convince the market she was going to hike, she should not have given the market a litany of 10 reasons the Fed did not hike at the last meeting.

Mike "Mish" Shedlock

Tracking the Implosion of Brazil; Be Careful of What You Wish; Perfect Storm; Email from Brazil; More Intervention Madness

Posted: 25 Sep 2015 02:16 AM PDT

Perfect Storm

Reader Lucas from Brazil writes about the "perfect storm".

Hello Mish

Brazilian interest rates are skyrocketing. Rates went up more than 2 percentage points in a month. Bond trading was suspended due to the quick devaluation.

Nobody is talking much about it, but energy corporation Petrobras is down 95% from the peak (in dollars). They have a high dollar exposure, and some estimates say that since June, Real devaluation alone was responsible for a +R$100B increase in debt.

Brazil's majors oil investments are in (really) deep water drilling, and they may be not worthy anymore. Petrobras debt is now equivalent to 8% of the whole country GDP.

And while. our president doesn't have support to do anything.

It's a perfect storm here.

Lucas

Petrobras

In classic bubble action, shares of Petrobas went from $4 to $77 back to $4. Executives no doubt, cashed out at every opportunity.

Brazil Real

The Brazilian Real went from 1.6 to the US dollar to 4.1 to the US dollar. That's a decline of about 54% .

Brazil 1-Year Government Bonds

Since 2007, the yield on 1-year Brazil government bonds went from just over 7% to over 16%.

Flashback March 2012

Please note the inserts on the second two charts. I highlighted the March 2012 candle because that's when Brazil Declared New Currency War on US and Europe.

"When the real appreciates, it reduces our competitiveness. Exports are more expensive, imports are cheaper and it creates unfair competition for businesses in Brazil," said Guido Mantega, the finance minister who was the first to use the controversial term "currency war" in 2010.

President Dilma Rousseff later weighed in on the debate, vowing to defend Brazilian industry and stop developed countries' policies from causing the "cannibalisation" of emerging markets.

The move comes as Brazil's central bank also steps up direct intervention in the market, selling dollars and offering derivatives called reverse currency swaps to curb the real's near 9 per cent surge against the US dollar this year.

Be Careful of What You Wish

It was just a few short years ago that Brazil was bitching about the strength of the Real. Brazil got its wish.

More Intervention Madness

On Thursday, we learned Brazil Real Mounts Biggest Rally in 7 Years on Intervention Suggestions

The Brazilian Real rallied nearly five percent Thursday following statements by the country's central bank president, which stated that he will explore the use of foreign exchange (FX) reserves to defend the currency against persistent declines versus the US Dollar. Brazil Central Bank (BCB) President Alexandre Tombini mentioned that different options will be used to stabilize the currency. Options that may be employed include swap contracts and dollar repurchase agreements.

What If Intervention Fails?

One day proves nothing.

I have a simple question for Brazil: What if intervention fails?

If Brazil blows all of its reserves defending a pseudo-peg that cannot be maintained, it will find itself in very dire straits. Untenable currency prop jobs are the way to ruin.

Ask Argentina; Ask Russia; Ask China who recently tried and failed to prop up its stock market. Heck ask Switzerland who recently had to abandon its peg to the euro.

The only thing that will stabilize the Real is sound economic policy and a stable government.

Until then, there is no question. Intervention "will" fail.

Mike "Mish" Shedlock

Damn Cool Pics

Shelter Dogs Take Their First Trip To Their Forever Home
Meet The 5 Month Old Fox That's Become A House Pet
Behind The Scenes Photos That Show A Different Side Of Hollywood's Biggest Hits

Shelter Dogs Take Their First Trip To Their Forever Home

Posted: 25 Sep 2015 07:18 PM PDT

These pictures capture the amazing moments when shelter dogs finally get taken to their new homes for the first time.

Meet The 5 Month Old Fox That's Become A House Pet

Posted: 25 Sep 2015 03:02 PM PDT

This 5 month old domesticated fox is named Rylai and Rylai is blowing up the Internet. She's become quite the sensation on Instagram and Facebook. She's got home life down for the most part but she's still working on the potty training.