2013: We Are Witnesses To A Grand Disconnect Of Hope/Perception From Reality AGAIN Like 2007
SHOCK: U.S. ECONOMY SHRINKS As DOW Is Flirting 14000.
The U.S. economy posted a stunning drop of 0.1 percent in the fourth quarter, defying expectations for slow growth and possibly providing incentive for more Federal Reserve stimulus.
The economy shrank from October through December for the first time since the recession ended, hurt by the biggest cut in defense spending in 40 years, fewer exports and sluggish growth in company stockpiles.
The Commerce Department said Wednesday that the economy contracted at an annual rate of 0.1 percent in the fourth quarter. That’s a sharp slowdown from the 3.1 percent growth rate in the July-September quarter.
NEW YORK — Stocks may be near record highs, but they are not terribly expensive, at least by one measure.
Last week the broad Standard & Poor’s 500 index closed above 1,500 for the first time in five years. This week the Dow Jones industrial average has been flirting with 14,000, a level it hasn’t seen since October 2007.
The U.S. economy is not ready to stand on its own, therefore the Federal Reserve should “keep the pedal to the medal” and continue quantitative easing (QE) well into 2015, Nobel Prize winning economist Paul Krugman tells Yahoo.
Jan 28, 2013 – 06:20 PM GMT
Steve Sjuggerud writes: Gary Shilling might have the best track record of any investor over the last 30 years…
Here in 2013, Shilling has some new big ideas… and some bold predictions… particularly about what he calls the “Grand Disconnect.”
Right now we’re in what I call The Grand Disconnect… The economies of the world are growing slowly… But investors couldn’t care less. All they are concerned about is the money being shoveled out the door by central banks.
And I call that the grand disconnect between the real economy and investors’ view of the world.
I think sooner or later it will be eliminated by some big shock… I think it could [be this year] but forecasting big shocks like this is obviously difficult. It’s in the cards, it’s just a question of when it will happen.
Let’s launch “Disconnect from Reality” Week with that perennial favorite, real estate. And as a poster child of that disconnect, how about a boarded-up 100-year old “fixer-upper” in a mediocre neighborhood for $470,000?
We know from the NASDAQ bubble that once risk appetite changes, prices can shift violently in the other direction. Housing is different from equities because it is much less liquid; therefore price adjustments take more time. In a down housing market, the gap between buyers and sellers widens, and volumes fall. Buyers pull back and sellers take time to realize their listing prices are too high.
Eventually, housing prices in entire neighborhoods will get reset downward by the weakest hand. Just as prices went up and everyone in the neighborhood applauded the newest neighbor who bought at the top, prices will likely start to fall as financially-stretched home owners and speculators sell, and are forced out of the market. As this process unfolds, risk appetite for housing should take a sharp turn for the worse. This year’s weak start to the traditionally strong spring selling season suggests we have indeed entered the “buyer’s strike” phase of the cycle.
Recession Imminent (from Safe Haven, by Paul Kasriel)
As homebuilders’ stocks rise–“the worst is over” yet again–and as inventory of unsold houses piles up, we are witnesses to a grand disconnect of hope/perception from reality.It is merely an observation, not a value judgment, that reality eventually overwhelms perception.
Right now most people are holding CASH in their accounts or have switched to commodities, ETF’s or currencies.
“Huge cash balances are being held by banks and brokerage houses. TD Ameritrade‘s (NYSE:AMTD) CEO confirmed Tuesday that they were sitting on over $90 billion in cash in customers’ accounts, which is almost double what it was at this time last year.”
For real this time.
Currency wars may be all the rage but they are merely a symptom of a much more deep-rooted problem. We are witnessing the return of economic nationalism. At the 2009 London Group of 20 summit, it seemed for a fleeting moment that nations had learnt how to work together to solve the world’s economic and financial problems. That dream no longer holds. Persistent economic stagnation has left our political leaders increasingly looking for national solutions to what have become deeply-entrenched international problems.
It is not so much that nations are becoming deliberately more protectionist. Rather, the cheerleaders for globalisation have gone into hiding. They can no longer so easily claim that the forces of internationalisation have brought benefits to all. Without those cheerleaders, however, the temptation to pursue economic nationalism becomes ever greater….
Index approaching record highs, with the two prior highs being the tops in 2000 and 2007
On Tuesday, several sources of technical data featured the monthly chart of the S&P 500, noting the index is approaching record highs. The implication is that the index will form a triple-top and that prices will then head south.