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Economic Outlook

U.S. Inflation: Prepare for 4% (or more!)

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Posted by Ned W. Schmidt

on Monday, 22 February 2016 08:38

Last we visited on the subject of U.S. inflation (November, 2015) we wrote,

"Using those simplistic numbers suggests that U.S. inflation as measured by the [headline] CPI could rise to an annual rate of about 4% ..."

That possibility is now increasingly likely given recent rise in U.S. inflation. This view is reaffirmed by recent data. If an error exists in this projection, it is to underestimate potential for inflation in U.S. to rise.

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Analyzing the state of U.S. inflation begins with the median CPI produced monthly by Federal Reserve Bank of Cleveland. What is the median CPI? To calculate the headline CPI for any particular month the rate of change is calculated for each of the components of the CPI such as energy, food, and housing. Headline CPI is then calculated by weighting each of those components to produce a weighted average. Median CPI is that rate of change for which half of the components had a higher rate of change and half had a lower rate of change. It divides a ranking of the component rates of inflaton in half. The median is less impacted by extreme changes in the prices for anycomponent which can in someways distort the weighted average CPI.

In top chart is plotted the year-to-year percentage change for the median CPI. Two observations are worthy of mention. These observations suggest that expectations of higher U.S. inflation are reasonable and likely to be correct. First, the latest observation exceeds the previous high. Second,in January the year-to-year percentage change rose to the highest level since 2009.



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Economic Outlook

Don’t Fall for the Government Fake-Out

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Posted by Connecting the Dots - Mauldin Economics

on Tuesday, 16 February 2016 08:50

Washington, DC is pretty proud of the employment numbers it has been pumping out. Most recently, the Labor Department reported that the US unemployment rate dropped to 4.9% in January.

That’s an eight-year low going back to the 2008–2009 Financial Crisis.

The actual number of new jobs was a little on the light side, at 151,000 versus the expected 190,000, but most of the Wall Street crowd was impressed with the +0.4% monthly increase in wages.

Image 1 20160216 CTD

....read more HERE

 



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Economic Outlook

Atlanta Fed Sees Far Weaker Than Expected Q1 GDP

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Posted by John Rubino - DollarCollapse.com

on Tuesday, 02 February 2016 07:15

Another Monday, another set of "surprisingly" bad economic numbers. A few representative headlines:

China manufacturing prices decline for 18th straight month
Oil prices fall 5% on bad China data, OPEC uncertainty
Global factories parched for demand, need stimulus
Junk bonds suffer a rare negative return in January
US consumer spending softens, savings hit 3-year high
US manufacturing weak again in January
China official PMI misses in January, Caixin PMI shows contraction
Japanese bond yields continue to collapse

There's more, but you get the (very dark) picture. And thanks to the Atlanta Fed's GDPNowprogram we can see in real time how these numbers translate into current-quarter GDP growth. Apparently the US is looking at yet another weak stretch in which economists (represented by the Blue Chip consensus) are gradually forced to admit that they've wildly overestimated our ability to manage our debt.

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GDP growth matters for a couple of reasons. First, an economy that's borrowing a lot of money (as all the major ones are) has to generate large amounts of new wealth or it sinks ever-deeper into a hole that eventually leads to a 1930s-style depression. 1.3% growth does not come close to stopping the expansion of debt/GDP. So every quarter like the current one brings a debt-driven collapse that much closer.

Second and far more interesting in the near-term, slow-growth/high-debt countries eventually conclude that their only remaining option is massive currency devaluation. Europe and Japan are already there, and are aggressively ramping up their own currency war offensives. The US, if history is any guide, will soon (either this year or as part of the next administration's "first 100 days" political offensive) decide that a too-strong dollar is standing in the way of "progress" and will start looking for ways to devalue.

Then the real fun begins -- at least for goldbugs. For holders of dollars it won't be nearly as pleasant. Here's the Canadian version of what's coming for US investors, though the US chart will be steeper and will go on for years instead of months:



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Economic Outlook

2016: Surprises and Scenarios

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Posted by John Mauldin - Mauldin Economics

on Monday, 18 January 2016 06:20

Bank Credit Analyst: Stuck in a Rut
Friedman: Italian Debt Crumbles
Bremmer: Transatlantic Breakdown
Lewitt: The Great Unwinding
Kass: No-Growth Stagflation
Zervos: Spoos & Blues
Jensen: Liquidity Crisis Ahead
Weldon: Currency Wars
A Few Final Thoughts
Hollywood (Florida), Cayman Islands, and Surprises

“The expected rarely occurs and never in the expected manner.”

                                                             – Vernon A. Walters

“The fundamental nature of exploration is that we don't know what’s there. We can guess and hope and aim to find out certain things, but we have to expect surprises.”

                                                            – Charles H. Townes

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I see it every December and January: in the flurry of economic and political forecasts, someone says we ought to “expect a surprise.”

Phrases like this drive the writer part of me crazy. A surprise, by definition, is something you don’t expect, so telling us to expect one makes no sense. They might as well say, “Expect the warm water to be cold.” The words don’t go together that way.

The analyst part of me, though, knows what they really mean: not that we should expect a particular unforeseeable event, but that we should recognize the probability that we will be surprised in some way, at some point.

In fact, that prediction is almost always realized. I can guarantee you’ll get surprised this year. I can’t guarantee what specific events will surprise you, but I can make some educated guesses, as I did last week in “Economicus Terra Incognita.” Today we’ll go a step further and look at some of the “surprises” others are seeing in their crystal balls.



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Economic Outlook

Special Report: Chinese Sunset

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Posted by A. Gary Shilling via John Mauldin's Outside The Box

on Thursday, 14 January 2016 10:22

Earlier in the week I asked my friend Gary Shilling if he could give me a summary of his 2016 forecast. He agreed to do so and sent it on. Then this morning he sent out a special short report on China that offers what I think is a valuable perspective that differs from what we’re seeing in the headlines - John Mauldin

The current turmoil in the Chinese economy and financial markets is shaking security markets globally as the yuan nosedived in the first week of this year and Chinese equities lost $1.1 trillion. What a contrast to the 13.3% compound annual growth from 1992 through 2007 (Chart 1) that propelled China’s GDP from 9% of America’s total to 59% last year (Chart 2)! So China moved ahead of Japan in 2009 to become the world’s second-largest economy as hundreds of millions of Chinese rose from poverty.

Image 1 201601 OTB

Image 2 201601 OTB

Reveling in Success

The Chinese revel in that success. They view themselves as the world’s superior society, and have chafed at being under



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Economic Outlook

The Coming European Revolution

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Posted by Martin Armstrong - Armstrong Economics

on Wednesday, 13 January 2016 07:18

I have warned that 2017 will be the political year from hell. What I am illustrating here is the link between a sovereign debt crisis and the Revolutionary Cycle. In 1933, Roosevelt came to power in the USA and turned the country toward socialism. That same year, 1933, brought Hitler and Mao to power. So 1934 was the revolutionary year. Such revolutions do not always bring blood in the streets. The next one is due in 2020 and we should see the system we currently live under go completely upside-down.

European-Revolutionary-Cycle

 

....continue reading HERE



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Economic Outlook

Is the Recession Starting?

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Posted by Martin Armstrong - Armstrong Economics

on Wednesday, 06 January 2016 10:41

380x368xECM2015-2020.jpg.pagespeed.ic.3v1xGN0sUBThe ISM purchasing managers’ index for the manufacturing sector in December 2015 in the USA has plummeted to its lowest level since June of 2009. This warns that the U.S. economy is entering a recession that is in line with the forecast of the ECM and the rise in the dollar.

However, keep in mind that this is simultaneously coming with the changing technology trend. By that, we mean that low-level jobs are being replaced rapidly by automated computers, in part, because of Obamacare and its Draconian tax burden upon business exceeding 25 employees. Therefore, unemployment will rise due to this expansion in technology and raising the minimum wage will accelerate that trend further.

In business, inventories are also shrinking as companies move to “just in time” methods by using technological advancements to minimize carried inventory. This trend is only further accelerated by the banks moving toward transactional banking where they are no longer interested in relationship banking. This also reduces the availability of loans for small business as banks do not want the risk.

The convergence of these trends will feel the recession ahead. Eventually, this will materialize in rising unemployment, a deepening crisis in student loans, and the fiscal mismanagement of governments demanding more and more taxes which will become a toxic cocktail of doom.

The ultimate rise in stocks in the years ahead (after a correction sling-shot move) will unfold simply as capital tries to secure its future by getting out of government bonds and banks.

 



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