The Lull Before The Storm: What’s Coming in 2011: "This week—what with Christmas on one end and the new year’s celebration on the other, and everthing in between covered in snow—nothing much is gonna happen: It’s a week that’s about as dead as Dillinger. So I figured I should take stock of where we are—and more importantly, where we’re going.
To me, the biggest macro-economic story of 2010 was Europe: It’s falling apart, and there doesn’t seem"
Thursday, December 30, 2010
Saturday, December 25, 2010
Charting 2010, Part 1: The Key Jobs Chart(s) Of 2010
Charting 2010, Part 1: The Key Jobs Chart(s) Of 2010: "
"
After a year of endless propaganda surrounding the imaginary jobs boom, which as we have been pointing out for months, is nothing more than the permanent transfer of full time jobs to part time, perhaps the one chart that captures the full effect of said 'recovery' is the comparison of number of employees added by China's sweatshop behemoth FoxConn, which at 300,000 in 2010 was just under one third of all non-farm payrolls added by the entire United States in the same year! In other words, this year one company added nearly one third the total number of jobs as the entire world's greatest economy.
One thing is certain: China is very grateful that highly levered American consumers continue to be the key driver of Chinese employment and manufacturing growth (if the same can not be said about our own country).
And even with this meager job creation, the US unemployment rate is only 9.8%? But perhaps what should really concern pundits, is that the number of Americans employed in manufacturing is even lower: 9.3%.
The next chart demystifies the BLS 'determination' process, and explains just how the real number of unemployed is 11.5 million over the official reading of 15.1: virtually double the number that serves as the input into the 9.8% November unemployment rate.
Furthermore, what should be truly depressing are the massive crowds of people at each and every job fair. These are the bulk of the people who are approaching 2+ year of unemployment.
As for who is doing the best and worst work by just having a job, BusinessWeek confirms that among those getting paid a lot of money it is only a matter of time before a substantial number will be forced to apply for jobless benefits (and EUCs ) and test the generosity of the US welfare state on their own terms.
There is more in this series, which we urge readers to read in totality at the following link. Tomorrow we will take a look at that arguably just as important vertical - money, and notably its "printing."
Source for all charts: BusinessWeek
Friday, December 24, 2010
Ten Economic and Investment Themes for 2011
Ten Economic and Investment Themes for 2011: "1. US Municipal Bankruptcies Head to Center Stage
Look for Detroit and at least one other city in Michigan to go bankrupt. Also look for increasing discussions regarding bankruptcy from Los Angeles, Miami, Oakland, Houston, and San Diego. Those cities are definitely bankrupt, they just have not admitted it yet. The first major city to go bankrupt will cause a huge stir in the municipal bond market. Best to avoid Munis completely.
2. Sovereign Debt Crisis Hits Europe
The ECB and EU are hoping things return to normal and they can deal with things more calmly in 2013. The markets will not wait. Expect a new Parliament in Ireland to want to renegotiate whatever horrendous deal Prime Minister Brian Cowen agrees to. Portugal and Spain will need bailouts. The surprise play in Europe will be Italy, a country not on anyone's front burner. Italy will come under intense credit market pressure, and when it does the whole Eurozone comes unglued. Europe's banks are insolvent and ECB president Jean-Claude Trichet will have a choice, haircuts or massive printing.
3. Cutbacks in US Cities and States
With Republican governors holding a majority of governorships, with Republicans holding a majority in the House, and with a far more conservative Senate, there is going to be little enthusiasm for increasing aid to states. There will be some aid to states of course, but nowhere near as much as needed to prevent cutbacks. Expect to see a huge number of layoffs and/or cutbacks in services. Cutbacks in cities and states will be a good thing, but that will counteract other gains in employment. The unemployment rate will stay stubbornly high.
4. Public Unions Under Intense Attack
Public unions will face increasing hostility, not only in the US but also the Eurozone and UK. Look for Congress to consider legislation to kill collective bargaining. If it passes, the president would veto it. The problem however will not go away. Cities and states in distress will increasingly outsource every contract they can.
5. China Overheats, Multiple Rate Hikes Coming
China, everyone's favorite promised land, has a hard landing. China will grow at perhaps 5-6% but that is nowhere near as much as China wants, or the world expects. Tightening in China will crack its property bubble and more importantly pressure commodities. The longer China holds off in tightening, the harder the landing.
6. Property Bubble Bursts Wide Open in Australia and Canada
Australia, having largely avoided the global recession runs out of luck this time around. Look for the Australian economy to fall into outright recession. Look for Canada to slow dramatically as its property bubble pops. The US property bubble is much further progressed, by years, than Australia, Canada, and China. This matters immensely.
7. US Avoids Double Dip
The tax cut extensions and the payroll tax decrease will keep the US out of recession. However, growth estimates are still too high. The tax cut extensions do nothing more than maintain the status quo while the payroll tax deduction is just for a year. Most will use it to pay down bills. Look for GDP at 2.0-2.5%. That is the stall rate.
8. Year That Something Matters
For the global equity markets, this will be the year that something matters. Certainly nothing mattered in 2010, and optimism for equities is at extreme levels. I have no targets other than a suggestion this is an extremely poor time to invest in darn near anything.
9. Decoupling in Reverse
I do not think any countries decouple in 2011, including China. However, on a relative basis, the US could. Europe is a basket case, China is overheating, Australia is headed for recession, the UK is going nowhere, and 2.0-2.5% growth in the US just might look damn good compared to anything else. Bear in mind far more than 2.0-2.5% US growth is priced in, but on a relative basis that is likely to smash the performance of the Eurozone, Australia, and Canada. China may grow 5.0-6.0% but with 10% priced in, overweight China, the emerging markets and the commodity producing countries is a serious mistake. Actually, equities are a mistake in general and so are commodities. Finally, falling commodity prices would be US dollar supportive and supportive of a decreasing US trade deficit as well, especially if grain prices stay high while oil sinks. Should grains stay firm while other commodities sink, it would help boost US GDP.
10. US Dollar to Strengthen
Look for the US dollar to strengthen because of the net effect of all the above issues.
Relative Performance Examples
On a relative but not absolute basis I like the US. On a currency adjusted basis I especially like Japan. Here is a hypothetical example: Should foreign equities drop 20% and the US dollar strengthen 10% the loss to US investors would be 30%. Should Foreign investors buy US equities and face a loss of 20% and a 10% rise in the dollar, they would see a 10% loss. US investors of course would see the full 20% loss. Japan looks attractive in nominal terms but strengthening of the dollar compared to the Yen could negate some if not all of that. Equities in general, with the possible exception of Japan do not look attractive.
Miscellaneous Issues
The order in which the above themes play out could be important. If a muni crisis hits the US before a sovereign crisis in the Eurozone and a slowdown in China, the dollar may not initially perform as expected. Similarly, if the US strengthens more than expected in the first quarter while Europe and China stagnate, another leg down in treasuries may be in store with the US dollar quickly blasting higher.
I have no firm conviction for gold, silver, or US treasuries other than gold is likely to hold its own and then some should the ECB decide to print its way out of this mess.
US treasuries are now in no-man's-land dependent on the order of things and the reactions of foreign central banks as the crisis plays out. Seasonally, treasuries are generally weak until June (think tax purposes). However, there are so many factors now, including Fed purchases, it is hard to estimate.
2010 was a lull in the global economic crisis. Don't expect 2011 to be the same. Something, indeed many things, are likely to matter in 2011.
Mike 'Mish' Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Look for Detroit and at least one other city in Michigan to go bankrupt. Also look for increasing discussions regarding bankruptcy from Los Angeles, Miami, Oakland, Houston, and San Diego. Those cities are definitely bankrupt, they just have not admitted it yet. The first major city to go bankrupt will cause a huge stir in the municipal bond market. Best to avoid Munis completely.
2. Sovereign Debt Crisis Hits Europe
The ECB and EU are hoping things return to normal and they can deal with things more calmly in 2013. The markets will not wait. Expect a new Parliament in Ireland to want to renegotiate whatever horrendous deal Prime Minister Brian Cowen agrees to. Portugal and Spain will need bailouts. The surprise play in Europe will be Italy, a country not on anyone's front burner. Italy will come under intense credit market pressure, and when it does the whole Eurozone comes unglued. Europe's banks are insolvent and ECB president Jean-Claude Trichet will have a choice, haircuts or massive printing.
3. Cutbacks in US Cities and States
With Republican governors holding a majority of governorships, with Republicans holding a majority in the House, and with a far more conservative Senate, there is going to be little enthusiasm for increasing aid to states. There will be some aid to states of course, but nowhere near as much as needed to prevent cutbacks. Expect to see a huge number of layoffs and/or cutbacks in services. Cutbacks in cities and states will be a good thing, but that will counteract other gains in employment. The unemployment rate will stay stubbornly high.
4. Public Unions Under Intense Attack
Public unions will face increasing hostility, not only in the US but also the Eurozone and UK. Look for Congress to consider legislation to kill collective bargaining. If it passes, the president would veto it. The problem however will not go away. Cities and states in distress will increasingly outsource every contract they can.
5. China Overheats, Multiple Rate Hikes Coming
China, everyone's favorite promised land, has a hard landing. China will grow at perhaps 5-6% but that is nowhere near as much as China wants, or the world expects. Tightening in China will crack its property bubble and more importantly pressure commodities. The longer China holds off in tightening, the harder the landing.
6. Property Bubble Bursts Wide Open in Australia and Canada
Australia, having largely avoided the global recession runs out of luck this time around. Look for the Australian economy to fall into outright recession. Look for Canada to slow dramatically as its property bubble pops. The US property bubble is much further progressed, by years, than Australia, Canada, and China. This matters immensely.
7. US Avoids Double Dip
The tax cut extensions and the payroll tax decrease will keep the US out of recession. However, growth estimates are still too high. The tax cut extensions do nothing more than maintain the status quo while the payroll tax deduction is just for a year. Most will use it to pay down bills. Look for GDP at 2.0-2.5%. That is the stall rate.
8. Year That Something Matters
For the global equity markets, this will be the year that something matters. Certainly nothing mattered in 2010, and optimism for equities is at extreme levels. I have no targets other than a suggestion this is an extremely poor time to invest in darn near anything.
9. Decoupling in Reverse
I do not think any countries decouple in 2011, including China. However, on a relative basis, the US could. Europe is a basket case, China is overheating, Australia is headed for recession, the UK is going nowhere, and 2.0-2.5% growth in the US just might look damn good compared to anything else. Bear in mind far more than 2.0-2.5% US growth is priced in, but on a relative basis that is likely to smash the performance of the Eurozone, Australia, and Canada. China may grow 5.0-6.0% but with 10% priced in, overweight China, the emerging markets and the commodity producing countries is a serious mistake. Actually, equities are a mistake in general and so are commodities. Finally, falling commodity prices would be US dollar supportive and supportive of a decreasing US trade deficit as well, especially if grain prices stay high while oil sinks. Should grains stay firm while other commodities sink, it would help boost US GDP.
10. US Dollar to Strengthen
Look for the US dollar to strengthen because of the net effect of all the above issues.
Relative Performance Examples
On a relative but not absolute basis I like the US. On a currency adjusted basis I especially like Japan. Here is a hypothetical example: Should foreign equities drop 20% and the US dollar strengthen 10% the loss to US investors would be 30%. Should Foreign investors buy US equities and face a loss of 20% and a 10% rise in the dollar, they would see a 10% loss. US investors of course would see the full 20% loss. Japan looks attractive in nominal terms but strengthening of the dollar compared to the Yen could negate some if not all of that. Equities in general, with the possible exception of Japan do not look attractive.
Miscellaneous Issues
The order in which the above themes play out could be important. If a muni crisis hits the US before a sovereign crisis in the Eurozone and a slowdown in China, the dollar may not initially perform as expected. Similarly, if the US strengthens more than expected in the first quarter while Europe and China stagnate, another leg down in treasuries may be in store with the US dollar quickly blasting higher.
I have no firm conviction for gold, silver, or US treasuries other than gold is likely to hold its own and then some should the ECB decide to print its way out of this mess.
US treasuries are now in no-man's-land dependent on the order of things and the reactions of foreign central banks as the crisis plays out. Seasonally, treasuries are generally weak until June (think tax purposes). However, there are so many factors now, including Fed purchases, it is hard to estimate.
2010 was a lull in the global economic crisis. Don't expect 2011 to be the same. Something, indeed many things, are likely to matter in 2011.
Mike 'Mish' Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike 'Mish' Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
"
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Why the United States of America is Broke
Why the United States of America is Broke: "Explaining why America is broke is rather simple. All we have to do is look at two separate and distinct problem areas: public unions and defense spending, then generalize the problem. Let's start with a look at defense spending.
Here's an article on Foreign Affairs magazine by William Pfaaf making a solid case How Militarism Endangers America . The article is subscription, but a decent sized synopsis and lead-in follows:
I am 100% in agreement with the synopsis and prelude as presented above. Here is a second article on the same subject. This one is courtesy of the Business Spectator.
Please consider America's Misdirected Missile by Alexander Liddington-Cox.
There is no rational reason for such spending. So how does it happen? The answer is the same way we are stuck with collective bargaining and absurd public union wages and benefits. Let's compare.
Public Unions
In the case of public unions, union members lobby vociferously for untenable wages and benefit packages. Greedy politicians willing to accept bribes to get reelected, go along. On any threat of reduction in benefits, union organizers get out the vote with massive fear-mongering campaigns promising ruin if they do not get what they want. At election time unions donate massively to candidates willing to back union sponsored agenda. Over time, school boards, city halls, and legislative bodies in general get packed with politicians accepting bribes (campaign contributions) from the unions.
Warmongers
Greedy politicians willing to accept bribes to get reelected, support massive defense budgets. Defense contractors as well as those receiving handouts from defense contractors label anyone not in favor of wars and massive military spending as 'soft on defense'. With massive fearmongering campaigns, including pictures of nuclear bombs going off, those organizations are able to whip up public sentiment to do whatever they want, which essentially is to spend more on defense. Every soldier in another country is another soldier that needs to be equipped. At election time defense contractors donate massively to candidates willing to waste more money on needless wars that do not need to be fought. Over time, legislative bodies in general get packed with politicians accepting bribes (campaign contributions) from warmongers.
Unfortunately, 'compromise' is such that taxpayers get stuck with the worst of both. We have baseless wars and untenable defense spending. We also have untenable collective bargaining rules, untenable social handouts, and untenable union wages and benefits.
General Terms
It's easy to generalize the above example. I received this email from reader 'Kevin' after I wrote the above but before I posted it. Kevin had seen the union example above as I had used it previously. Kevin writes ....
In case you missed it, please see Interactive Map Showing Where $130 Billion in Earmarks Went, by State, District, and Politician.
The big problems are military spending, public unions, and entitlements. However, problems big and small are everywhere you look, and the process of buying votes and seeking special favors is generally smack in the midst of it all.
Republicans keep campaigning for 'small government'. It certainly would be nice if they delivered for a change. Unfortunately, Republicans will not give in on military spending (nor will Obama quite sadly), and Democrats won't budge on entitlements.
Compromise in D.C. most often means taxpayers get the worst of what each party has to offer.
Mike 'Mish' Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Here's an article on Foreign Affairs magazine by William Pfaaf making a solid case How Militarism Endangers America . The article is subscription, but a decent sized synopsis and lead-in follows:
Summary:America's Misdirected Missile
The United States has built a worldwide system of more than 1,000 military bases, stations, and outposts -- a system designed to enhance U.S. national security. It has actually done the opposite, provoking conflict and creating insecurity.
WILLIAM PFAFF wrote a syndicated column that appeared in the International Herald Tribune from 1978 to 2006 and contributed political 'Reflections' to The New Yorker from 1971 to 1992. His latest book, The Irony of Manifest Destiny: The Tragedy of America's Foreign Policy, was published in June.
[Article Start]
It is time to ask a fundamental question that few government officials or politicians in the United States seem willing to ask: Has it been a terrible error for the United States to have built an all-but-irreversible worldwide system of more than 1,000 military bases, stations, and outposts? This system was created to enhance U.S. national security, but what if it has actually done the opposite, provoking conflict and creating the very insecurity it was intended to prevent?
The most compelling arguments for opposing this system of global bases are political and practical. U.S. military bases have generated apprehension and hostility and fear of the United States, and they have facilitated futile, unnecessary, unprofitable, and self-defeating wars in Afghanistan and Iraq and now seem to be inviting enlarged U.S. interventions in Pakistan, Yemen, and the Horn of Africa. The 9/11 attacks, according to Osama bin Laden himself, were provoked by the 'blasphemy' of the existence of U.S. military bases in the sacred territories of Saudi Arabia. The global base system, it seems, tends to produce and intensify the very insecurity that is cited to justify it.
AN ACCIDENTAL EMPIRE
The United States' present global military deployment does not seem to be the product of conscious design, nor was it assembled absent-mindedly. In part, it is the natural result of bureaucracy left unchecked. At the end of World War II, a precipitous dismantling of the U.S. wartime deployment was halted only by the outbreak of the Cold War. The United States' intervention in Vietnam brought some base expansion in Southeast Asia, but after its failure in Vietnam, the U.S. military was determined to have nothing further to do with insurgencies and quickly returned to reorganization and retraining for what it still considered its primary mission: classical warfare in Europe in the event of a Soviet invasion. This eventually led to the brilliant blitzkrieg against Iraq in the first Gulf War, fought under the Powell Doctrine of popular support, overwhelming force, focused objectives, and rapid withdrawal.
I am 100% in agreement with the synopsis and prelude as presented above. Here is a second article on the same subject. This one is courtesy of the Business Spectator.
Please consider America's Misdirected Missile by Alexander Liddington-Cox.
The latest WikiLeaks scoop for The Age is a cable from the United States embassy in Canberra expressing concern to Washington about Australia's ability to meet its purchases of military equipment. Australia's defence budget currently sits at around $22 billion a year and, apparently, US diplomats were left unimpressed by the efforts of Australia's Defence Materiel Organisation chief Stephen Gumley to explain how Australia would meet its aims to increase military spending, as laid out in the White Paper. While the article didn't reveal whether or not the cable's author appreciated the irony of a US official lecturing anyone about measured military spending, this graph should really be passed on to them – just in case.For a complete graph and additional commentary, please see the article.
While this graph puts the US defence budget at $US711 billion in 2009, that doesn't include a number of 'off-budget' items that, on some estimates, push US defence spending above $US1.3 trillion. And yet, America continues to drown in debt with only modest efforts to reign in how much it puts towards guns, tanks and missiles. Now, being the world's superpower invariably comes with a large military budget and sure some cash can go missing. But in 2002, then Defence Secretary Donald Rumsfeld admitted that on some estimates the Pentagon had lost track of $US2.3 trillion in transactions and there was no way of ascertaining how the money was spent. How long will it be before the US really does something about its own military spending problems?
There is no rational reason for such spending. So how does it happen? The answer is the same way we are stuck with collective bargaining and absurd public union wages and benefits. Let's compare.
Public Unions
In the case of public unions, union members lobby vociferously for untenable wages and benefit packages. Greedy politicians willing to accept bribes to get reelected, go along. On any threat of reduction in benefits, union organizers get out the vote with massive fear-mongering campaigns promising ruin if they do not get what they want. At election time unions donate massively to candidates willing to back union sponsored agenda. Over time, school boards, city halls, and legislative bodies in general get packed with politicians accepting bribes (campaign contributions) from the unions.
Warmongers
Greedy politicians willing to accept bribes to get reelected, support massive defense budgets. Defense contractors as well as those receiving handouts from defense contractors label anyone not in favor of wars and massive military spending as 'soft on defense'. With massive fearmongering campaigns, including pictures of nuclear bombs going off, those organizations are able to whip up public sentiment to do whatever they want, which essentially is to spend more on defense. Every soldier in another country is another soldier that needs to be equipped. At election time defense contractors donate massively to candidates willing to waste more money on needless wars that do not need to be fought. Over time, legislative bodies in general get packed with politicians accepting bribes (campaign contributions) from warmongers.
Unfortunately, 'compromise' is such that taxpayers get stuck with the worst of both. We have baseless wars and untenable defense spending. We also have untenable collective bargaining rules, untenable social handouts, and untenable union wages and benefits.
General Terms
It's easy to generalize the above example. I received this email from reader 'Kevin' after I wrote the above but before I posted it. Kevin had seen the union example above as I had used it previously. Kevin writes ....
Hello MishKevin had written 'corporations' but I changed it to 'organizations' to be more broad-based. The above describes quite nicely what happened with health care legislation and it sure helps explain earmarks as well.
Here is the corporate lobbyist problem in a nutshell:
Organizations of all types lobby vociferously for untenable subsidies and tax breaks. Greedy politicians willing to accept bribes to get reelected, go along. On any threat of reduction in subsidies or increase in taxes, the organizations get out the vote with massive fear-mongering campaigns promising ruin if they do not get what they want. At election time organizations donate massively to candidates willing to back their agenda. Over time, board of directors, city halls, and legislative bodies in general get packed with politicians accepting bribes (campaign contributions) from the organization.
In case you missed it, please see Interactive Map Showing Where $130 Billion in Earmarks Went, by State, District, and Politician.
The big problems are military spending, public unions, and entitlements. However, problems big and small are everywhere you look, and the process of buying votes and seeking special favors is generally smack in the midst of it all.
Republicans keep campaigning for 'small government'. It certainly would be nice if they delivered for a change. Unfortunately, Republicans will not give in on military spending (nor will Obama quite sadly), and Democrats won't budge on entitlements.
Compromise in D.C. most often means taxpayers get the worst of what each party has to offer.
Mike 'Mish' Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike 'Mish' Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
"
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
An inflation (or lack thereof) chart show
An inflation (or lack thereof) chart show: "
"
Over at TheMoneyIllusion, Scott Sumner takes a shot at what he refers to as “Disinflation Denial.” His point is that prior to the recent run-up, “commodity price indices fell by more than 50%.” Thus, if the run-up in commodity prices suggests loose policy now, they must have been signaling tight policy earlier.
I am hesitant to endorse the view that any subset of prices gives us a clear view of inflation trends. What I do endorse in the Sumner piece is the advice that “the Fed look at a wide range of indicators.” I can tell you that is exactly what we do at the Atlanta Reserve Bank and, as just one example within the Fed System, in this post I’ll review the battery of indicators that we are currently looking at here. Most of these will be no surprise, but I find it useful to occasionally see them in one place. So here we go. (Note that throughout this blog post I will focus most of my comments on the consumer price index [CPI], but most of what I say also applies to the personal consumption expenditure [PCE] price index as well.)
First up, of course, are the so-called (and often maligned) core measures of inflation. I am completely sympathetic to the view that the traditional core index, which subtracts out food and energy components, is a somewhat arbitrary cut of the price statistics. For that reason, Ipersonally tend to lean more heavily on median and trimmed-mean measures.
In Atlanta, we have been monitoring a newer core inflation measure, called the “sticky-price CPI,” jointly developed by Mike Bryan and Brent Meyer (of the Atlanta and Cleveland Feds, respectively). As described by Bryan and Meyer:
“Some of the items that make up the Consumer Price Index change prices frequently, while others are slow to change… sticky prices [those that are slow to change] appear to incorporate expectations about future inflation to a greater degree than prices that change on a frequent basis… our sticky-price measure seems to contain a component of inflation expectations, and that component may be useful when trying to gauge where inflation is heading.”
Like the other core measure, the sticky-price CPI shows a pronounced downward movement over the past several years, with some sign of (an ever-so-slight) recovery as of late.
Though I disagree with the assertion that core measures are a convenient way to ignore unpleasant movements in the overall CPI—there is evidence that core measures are useful in predicting where total CPI inflation is heading—it is almost surely a bad idea to ignore what is happening to headline statistics. (After all, in the end it is the average of all prices with which we are concerned.)
Here too, the evidence suggests, at the very least, there is scant evidence that disinflation has left the scene:
I find it useful to take at least two more cuts at the overall price data. One, which has a decidedly short-term focus, involves examining the distribution of price changes in the broad categories that make up the headline CPI. Though a popular criticism of Fed policy—discussed and critiqued at Econbrowser—tries to deflate deflation concerns by reciting a number of prices that are rising, it is obvious that one could just as easily tick off a reasonably large list of prices that are falling:
(The individual colors in the chart represent different components of the CPI. The underlying data can be found from this link to the explanation of the median CPI.)
The graph of the November price change distribution is actually somewhat encouraging. What it tells us is that almost half of the price changes in the CPI market basket, weighted by their shares of total consumer expenditures, fell in the (annualized) range of 0 percent to 2 percent. Furthermore, about as many price changes were below this range as they were above it.
A closer look at the prices that fall in the 0 percent to 2 percent category, however, reveals that individual price changes are skewed to the downside of the range:
On a month-to-month basis, the distribution of individual prices does shift around, so these statistics are nothing more than suggestive short-run snapshots (but I believe they are informative nonetheless).
At the other end of the temporal scale is a look at how inflation has behaved over time. If the central bank had a long history of missing its stated inflation objectives, we might feel very different about an inflation rate that is below what Chairman Bernanke has referred to as “the mandate-consistent inflation rate” of “about 2 percent or a bit below” than we would if average prices were hewing pretty close to the target path. As I have previously noted, over the past 15 years or so, the Federal Open Market Committee (FOMC) has delivered an average inflation rate, measured as growth in the PCE price index, that is wholly consistent with this mandate. Here’s the case in a graph, adjusting the mandate-consistent inflation rate to account for an assumed upward bias in the CPI relative to the PCE index:
Actually, those short-run complications are mostly associated with falling expectations of inflation. In my last macroblog post, I argued that the stabilization of market-based CPI inflation expectations and the associated decline in the perceived probability of deflation should arguably be counted as a success of the Fed’s current policy stance. The latest on market-based expectations was included in our previous macroblog item. For completeness, survey-based expected long-term inflation remains somewhat below the levels prior to the onset of the recession:
I believe this is basically the bottom line: whether we look at headline inflation (straight-up, component-by-component, or in terms of the long-run trend), core inflation measures (of virtually any sensible variety), or inflation expectations (survey or market based), there is little a hint of building inflationary pressure.
While I don’t dismiss the usefulness of looking at other indicators (stock prices, bond prices, foreign exchange rates, commodity prices, and real estate prices are on Scott Sumner’s list; I would add various measures of labor costs to mine), you have to be pretty selective in your attentions to build the contrary case.
But feel free. We’ll keep watching.
By Dave Altig
Senior vice president and research director at the Atlanta Fed
Thursday, December 23, 2010
Economic Outlook: 5 Things that Could Happen in 2011
Economic Outlook: 5 Things that Could Happen in 2011: "
"
Nothing comes from nothing. But what comes from something?
Did you see what happened? The Fed’s holdings topped $2 trillion for the first time ever. It took 95 years to get the Fed’s holdings to $600 billion. In the space of 3 years, it has added $1.4 trillion more. That’s something.
Extraordinary, no? Amazing, n’est-ce pas? Incredible, huh?
And yet, the feds expect this explosion of Fed assets to produce an ordinary firecracker of a recovery. They expect – or hope – that this fantastic increase in the base money supply of the US banking system will result in a rather run-of-the-mill rebound in the US economy.
The inflation rate (CPI) is only 1%…they think it will go to 2%. Long bond yields are expected to go up a little too – but not too much. Investor experts are predicting a 10% increase in stock prices in 2011. Almost every economist is talking about a “gradually strengthening recovery.” Unemployment is supposed to go down a little. House prices are expected to stabilize…and even rise.
In other words, an out-of-control monster of monetary inflation is expected to sire a pipsqueak of a recovery.
We’ve talked in the past about how nothing comes from nothing…and how you can’t produce real wealth with ersatz money. But what about this? Here we have the Fed doing something really big. Three times as big as anything they did in all the years since 1913.
And yet, economists expect nothing much to happen.
How likely is that? The feds don’t know what they are doing. They are juggling nuclear bombs…and testing runaway viruses on an unsuspecting population.
What might happen?
Here are some guesses:
1) It will create more speculative bubbles. We wouldn’t be at all surprised to see oil go to $100 and above, for example. The Fed’s money is, so far, not making it into the real economy. But it is available to speculators. And speculators are betting that they can make more money in commodities than in US T-bills. So, keep an eye open. Most likely, you’ll see some bubbles in 2011.
2) Emerging market stocks could soar. Imagine that you’re ‘trading’ for Goldman Sachs. You can borrow dollars for nothing. What do you do with them? Invest them in the world’s fastest growing economies! If you’re lucky, you’ll get 10%…maybe 20% return – on someone else’s money. And if you’re unlucky? Who cares? It’s not your money. And you won’t go broke. The Fed will give you more money.
3) Gold to $1,500. Why not? The IMF just completed selling. China, India and other emerging economies are adding to their stash. Speculators are getting in on the biggest and most reliable bull market in the financial world. Heck, even individual investors are catching on.
Passing through the airport in Miami last week, we noticed a gold vending machine! We had heard they were around. But this was the first time we saw one. How surprising would it be if more and more ordinary people started imitating the rich, who’ve been buying gold for years? Suppose people realize that their central bank is now working against them…and that they have to maintain their own real money reserves? We could easily see gold over $1,500 in 2011.
4) US bond yields rise; the bond market begins to break down. It looked like it was beginning a week or two ago. Bonds were going down just as Ben Bernanke was trying to push them up. Sooner or later, it’s bound to happen. Investors must eventually realize that buying US debt is a dangerous proposition; the Fed is actively trying to reduce its value. And if there is one thing the Fed ought to be able to do it’s to undermine the value of US debt. After all, the feds control the currency it’s calibrated in.
5) In contrast to this bubbly and bodacious outlook is a not-insignificant risk that the whole shebang will blow up. US stocks could crash. Bubbles can explode. Unemployment, housing, sales, consumer price inflation – all could get worse. Then what? Then, the US dollar and US debt will go up!
Well, which is it, you’re probably wondering. Inflation or deflation? Boom or bust?
Our answer? Yes!
It’s all coming. If not in 2011, then…later.
Bill Bonner
for The Daily Reckoning
Economic Outlook: 5 Things that Could Happen in 2011 originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called 'the most entertaining read of the day.'
James Montier In Defense Of Mean Reversion, And Why Economist Predictions Are For Idiots
James Montier In Defense Of Mean Reversion, And Why Economist Predictions Are For Idiots: "
"
In his latest letter, 'In Defense of the 'Old Always'" GMO's James Montier takes PIMCO's trademark "New Normal" to task, and argues that the "Old Always" with its ever trusty mean reversion strategies work as well now as they always did. Summarizing his disagreement with what the investment implications of the New Normal are, Montier says: "For instance, Richard Clarida of PIMCO wrote the following earlier this year, “Positioning for mean reversion will be a less compelling investment theme in a world where realized returns cluster nearer the tails and away from the mean.” This certainly isn’t the first premature obituary written for mean reversion. During pretty much every “new era,” someone proclaims that the old rules simply don’t apply anymore … who could forget Irving Fisher’s statement that stocks had reached a “permanently high plateau” in 1929? Mean reversion is in some august company in being well enough to read its own obituary." The key defense for mean reversion Montier says, is the market itself: "we have witnessed some quite remarkable, and quite appalling, things – the deaths of empires, the births of nations, waves of globalization, periods of deregulation, periods of re-regulation, World Wars, revolutions, plagues, and huge technological and medical advances – and yet one thing has remained true throughout history: none of these events mattered from the perspective of value!" Which means: is this time really different? Have we passed some rubicon at which time not even the otherwise spot on observations of traditionally sensible analysts like Montier make sense? The answer is so far elusive. Yet in a universe in which true asset fair value can no longer be derived, and all valuations are wrapped in the enigma of trillions of monetary and fiscal stimuli, whose stripping is virtually impossible in a world in which everything is centrally planned, we just may have entered... the non-'old always' zone.
From Montier:
The concept of the “new normal” abounds in markets these days. It seems I can’t open the Financial Times without at least one headline proclaiming the importance of the new normal. But what does it mean for the way we invest?
Part of the difficulty in answering that question is the plethora of meanings that have become associated with the term “new normal.” For some, it is an environment of subdued growth in the developed markets (the result of ongoing deleveraging – similar in essence to the “seven lean years” that Jeremy Grantham, among others, has previously described). For others, it encapsulates a prolonged period of high volatility (in either economies or asset markets).
According to PIMCO, the coiners of the term, the new normal is also explained as an environment wherein “the snapshot for ‘consensus expectations’ has shifted: from traditional bell-shaped curves – with a high likelihood mean and thin tails (indicating most economists have similar expectations) – to a much flatter distribution of outcomes with fatter tails (where opinion is divided and expectations vary considerably).”2 That is to say, the distribution of forecasts has become more uniform (as per Exhibit 1).
Montier then goes on to butcher all those who believe that that hard earned Pd.D. in economics is actually worth its weight in feces:
Why do I think that mean reversion is still very much alive and well? First, I fear that the concept of the new normal confuses the distribution of economic outcomes (and forecasts thereof) with the distribution of asset markets. As I pointed out above, for some (although not all) economic variables the new normal offers a good description of the current state of play. So, perhaps the world of forecasts will be characterized by a flatter distribution with fatter tails.
However, attempting to invest on the back of economic forecasts is an exercise in extreme folly, even in normal times. Economists are probably the one group who make astrologers look like professionals when it comes to telling the future. Even a cursory glance at Exhibit 4 reveals that economists are simply useless when it comes to forecasting. They have missed every recession in the last four decades! And it isn’t just growth that economists can’t forecast: it’s also inflation, bond yields, and pretty much everything else.
Which brings us back to Nassim Taleb's favorite topic: fat tails investing.
If we add greater uncertainty, as reflected by the distribution of the new normal, to the mix, then the difficulty of investing based upon economic forecasts is likely to be squared!
In contrast, we have long known of the existence of fat tails in asset markets. Mandelbrot was writing about the presence of fat tails in the 1960s. From the perspective of mean reversion, fat tails help to create some of the best opportunities. That is to say, fat tails often create fat pitches.
For instance, a sequence of “good” fat tail returns often results in extreme overvaluation (witness Exhibit 5, with TMT stocks trading at over 100x 10-year trailing earnings in the late 1990s and Japan trading at over 90x 10-year trailing earnings almost exactly a decade earlier), whilst a series of “bad” fat tail returns can result in severe undervaluation (see Exhibit 6, with the U.S. market trading at 5x 10-year trailing earnings in 1932).
In conclusion:
It is also worth noting that in order for mean-reversion-based strategies to work, it is not required that the mean be realized for long periods of time, but that markets continue to behave as they always have, swinging pendulumlike between the depths of despair and irrational exuberance, or, from risk-on to risk-off. As long as markets display such bipolar disorder and switch from periods of mania to periods of depression, then mean reversion should continue to merit worth as an investment strategy.
History is littered with the remains of proclaimed, but unfulfilled, new eras. Exhibit 6 shows the long-run history for the Graham and Dodd P/E for the U.S. market. Over this time, we have witnessed some quite remarkable, and quite appalling, things – the deaths of empires, the births of nations, waves of globalization, periods of deregulation, periods of re-regulation, World Wars, revolutions, plagues, and huge technological and medical advances – and yet one thing has remained true throughout history: none of these events mattered from the perspective of value!
As Ben Graham wrote, “Let me conclude with one of my favourite clichés – the French saying: ‘The more it changes the more it’s the same thing.’ I have always thought this motto applied to the stock market better than anywhere else. Now the really important part of this proverb is the phrase ‘the more it changes.’ The economic world has changed radically and it will change even more. Most people think now that the essential nature of the stock market has been undergoing a corresponding change. But if my cliché is sound – and a cliché’s only excuse, I suppose, is that it is sound – then the stock market will continue to be essentially what it always was in the past – a place where a big bull market is inevitably followed by a big bear market. In other words, a place where today’s free lunches are paid for doubly tomorrow. In the light of experience, I think the present level of the stock market is an extremely dangerous one.”
I simply couldn’t have put it any better!
| Attachment | Size |
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| Montier 12.23.pdf | 188.58 KB |
James Montier In Defense Of Mean Reversion, And Why Economist Predictions Are For Idiots
James Montier In Defense Of Mean Reversion, And Why Economist Predictions Are For Idiots: "
"
In his latest letter, 'In Defense of the 'Old Always'" GMO's James Montier takes PIMCO's trademark "New Normal" to task, and argues that the "Old Always" with its ever trusty mean reversion strategies work as well now as they always did. Summarizing his disagreement with what the investment implications of the New Normal are, Montier says: "For instance, Richard Clarida of PIMCO wrote the following earlier this year, “Positioning for mean reversion will be a less compelling investment theme in a world where realized returns cluster nearer the tails and away from the mean.” This certainly isn’t the first premature obituary written for mean reversion. During pretty much every “new era,” someone proclaims that the old rules simply don’t apply anymore … who could forget Irving Fisher’s statement that stocks had reached a “permanently high plateau” in 1929? Mean reversion is in some august company in being well enough to read its own obituary." The key defense for mean reversion Montier says, is the market itself: "we have witnessed some quite remarkable, and quite appalling, things – the deaths of empires, the births of nations, waves of globalization, periods of deregulation, periods of re-regulation, World Wars, revolutions, plagues, and huge technological and medical advances – and yet one thing has remained true throughout history: none of these events mattered from the perspective of value!" Which means: is this time really different? Have we passed some rubicon at which time not even the otherwise spot on observations of traditionally sensible analysts like Montier make sense? The answer is so far elusive. Yet in a universe in which true asset fair value can no longer be derived, and all valuations are wrapped in the enigma of trillions of monetary and fiscal stimuli, whose stripping is virtually impossible in a world in which everything is centrally planned, we just may have entered... the non-'old always' zone.
From Montier:
The concept of the “new normal” abounds in markets these days. It seems I can’t open the Financial Times without at least one headline proclaiming the importance of the new normal. But what does it mean for the way we invest?
Part of the difficulty in answering that question is the plethora of meanings that have become associated with the term “new normal.” For some, it is an environment of subdued growth in the developed markets (the result of ongoing deleveraging – similar in essence to the “seven lean years” that Jeremy Grantham, among others, has previously described). For others, it encapsulates a prolonged period of high volatility (in either economies or asset markets).
According to PIMCO, the coiners of the term, the new normal is also explained as an environment wherein “the snapshot for ‘consensus expectations’ has shifted: from traditional bell-shaped curves – with a high likelihood mean and thin tails (indicating most economists have similar expectations) – to a much flatter distribution of outcomes with fatter tails (where opinion is divided and expectations vary considerably).”2 That is to say, the distribution of forecasts has become more uniform (as per Exhibit 1).
Montier then goes on to butcher all those who believe that that hard earned Pd.D. in economics is actually worth its weight in feces:
Why do I think that mean reversion is still very much alive and well? First, I fear that the concept of the new normal confuses the distribution of economic outcomes (and forecasts thereof) with the distribution of asset markets. As I pointed out above, for some (although not all) economic variables the new normal offers a good description of the current state of play. So, perhaps the world of forecasts will be characterized by a flatter distribution with fatter tails.
However, attempting to invest on the back of economic forecasts is an exercise in extreme folly, even in normal times. Economists are probably the one group who make astrologers look like professionals when it comes to telling the future. Even a cursory glance at Exhibit 4 reveals that economists are simply useless when it comes to forecasting. They have missed every recession in the last four decades! And it isn’t just growth that economists can’t forecast: it’s also inflation, bond yields, and pretty much everything else.
Which brings us back to Nassim Taleb's favorite topic: fat tails investing.
If we add greater uncertainty, as reflected by the distribution of the new normal, to the mix, then the difficulty of investing based upon economic forecasts is likely to be squared!
In contrast, we have long known of the existence of fat tails in asset markets. Mandelbrot was writing about the presence of fat tails in the 1960s. From the perspective of mean reversion, fat tails help to create some of the best opportunities. That is to say, fat tails often create fat pitches.
For instance, a sequence of “good” fat tail returns often results in extreme overvaluation (witness Exhibit 5, with TMT stocks trading at over 100x 10-year trailing earnings in the late 1990s and Japan trading at over 90x 10-year trailing earnings almost exactly a decade earlier), whilst a series of “bad” fat tail returns can result in severe undervaluation (see Exhibit 6, with the U.S. market trading at 5x 10-year trailing earnings in 1932).
In conclusion:
It is also worth noting that in order for mean-reversion-based strategies to work, it is not required that the mean be realized for long periods of time, but that markets continue to behave as they always have, swinging pendulumlike between the depths of despair and irrational exuberance, or, from risk-on to risk-off. As long as markets display such bipolar disorder and switch from periods of mania to periods of depression, then mean reversion should continue to merit worth as an investment strategy.
History is littered with the remains of proclaimed, but unfulfilled, new eras. Exhibit 6 shows the long-run history for the Graham and Dodd P/E for the U.S. market. Over this time, we have witnessed some quite remarkable, and quite appalling, things – the deaths of empires, the births of nations, waves of globalization, periods of deregulation, periods of re-regulation, World Wars, revolutions, plagues, and huge technological and medical advances – and yet one thing has remained true throughout history: none of these events mattered from the perspective of value!
As Ben Graham wrote, “Let me conclude with one of my favourite clichés – the French saying: ‘The more it changes the more it’s the same thing.’ I have always thought this motto applied to the stock market better than anywhere else. Now the really important part of this proverb is the phrase ‘the more it changes.’ The economic world has changed radically and it will change even more. Most people think now that the essential nature of the stock market has been undergoing a corresponding change. But if my cliché is sound – and a cliché’s only excuse, I suppose, is that it is sound – then the stock market will continue to be essentially what it always was in the past – a place where a big bull market is inevitably followed by a big bear market. In other words, a place where today’s free lunches are paid for doubly tomorrow. In the light of experience, I think the present level of the stock market is an extremely dangerous one.”
I simply couldn’t have put it any better!
| Attachment | Size |
|---|---|
| Montier 12.23.pdf | 188.58 KB |
Rosenberg's Top Ten Reasons For Cautiousness In 2011
Rosenberg's Top Ten Reasons For Cautiousness In 2011: "
"
David Rosenberg closes the 2010 books with his top ten reasons to be cautious for 2011. We are fairly confident that none of these will come as a surprise to regular readers of Zero Hedge. The only real risk to the now endless melt up, in our view, is that actual news actually start having an impact on stocks. If that ever happens, look out below.
TEN REASONS TO BE CAUTIOUS FOR THE 2011 MARKET OUTLOOK:
1. In Barron’s look-ahead piece, not one strategist sees the prospect for a market decline. This is called group-think. Moreover, the percentage of brokerage house analysts and economists to raise their 2011 GDP forecasts has risen substantially. Out of 49 economists surveyed, 35 say the U.S. economy will outperform the already upwardly revised GDP forecasts, only 14 say we will underperform. This is capitulation of historical proportions.
2. The weekly fund flow data from the ICI showed not only massive outflows, but in aggregate, retail investors withdrew a RECORD net $8.6 billion from bond funds during the week ended December 15 (on top of the $1.7 billion of outflows in the prior week). Maybe now all the bond bears will shut their traps over this “bond-bubble” nonsense.
3. Investors Intelligence now shows the bull share heading up to 58.8% from 55.8% a week ago, and the bear share is up to 20.6% from 20.5%. So bullish sentiment has now reached a new high for the year and is now the highest since 2007 ? just ahead of the market slide.
4. It may pay to have a look at Dow 1929-1949 analog lined up with January 2000. We are getting very close to the May 1940 sell-off when Germany invaded France. As a loyal reader and trusted friend notified us yesterday, “fighting” war may be similar to the sovereign debt war raging in Europe today. (Have a look at the jarring article on page 20 of today’s FT — Germany is not immune to the contagion gripping Europe.)
5. What about the S&P 500 dividend yield, and this comes courtesy of an old pal from Merrill Lynch who is currently an investment advisor. Over the course of 2010, numerous analysts were saying that people must own stocks because the dividend yields will be more than that of the 10-year Treasury. But alas, here we are today with the S&P 500 dividend yield at 2% and the 10-year T-note yield at 3.3%.
From a historical standpoint, the yield on the S&P 500 is very low ? too low, in fact. This smacks of a market top and underscores the point that the market is too optimistic in the sense that investors are willing to forgo yield because they assume that they will get the return via the capital gain. In essence, dividend yields are supposed to be higher than the risk free yield in a fairly valued market because the higher yield is “supposed to” compensate the investor for taking on extra risk. The last time S&P yields were around this level was in the summer of 2000, and we know what happened shortly after that. When the S&P yield gets to its long-term average of 4.35%, maybe even a little higher, then stocks will likely be a long-term buy.
6. The equity market in gold terms has been plummeting for about a decade and will continue to do so. When measured in Federal Reserve Notes, the Dow has done great. But there has been no market recovery when benchmarked against the most reliable currency in the world. Back in 2000, it took over 40oz of gold to buy the Dow; now it takes a little more than 8oz. This is typical of secular bear markets and this ends when the Dow can be bought with less than 2oz of gold. Even then, an undershoot could very well take the ratio to 1:1.
7. As Bob Farrell is clearly indicating in his work, momentum and market breadth have been lacking. The number of stocks in the S&P 500 that are making 52-week highs is declining even though the index continues to make new 52-week highs.
8. Stocks are overvalued at the present levels. For December, the Shiller P/E ratio says stocks are now trading at a whopping 22.7 times earnings! In normal economic periods, the Shiller P/E is between 14 and 16 times earnings. Coming out of the bursting of a credit bubble, the P/E ratio historically is 12. Coming out of a credit bubble of the magnitude we just had, the P/E should be at single digits.
9. The potential for a significant down-leg in home prices is being underestimated. The unsold existing inventory is still 80% above the historical norm, at 3.7 million. And that does not include the ‘shadow’ foreclosed inventory. According to some superb research conducted by the Dallas Fed, completing the mean-reversion process would entail a further 23% decline in real home prices from here. In a near zero percent inflation environment, that is one massive decline in nominal terms. Prices may not hit their ultimate bottom until some point in 2015.
10. Arguably the most understated, yet significant, issue facing both U.S. economy and U.S. markets is the escalating fiscal strains at the state and local government levels, particularly those jurisdictions with uncomfortably high pension liabilities. Have a look at Alabama town shows the cost of neglecting a pension fund on the front page of the NYT as well as Chapter 9 weighed in pension woes on page C1 on WSJ.
In the absence of Chapter 9 declarations or dramatic federal aid, fixing the fiscal problems at lower levels of government is very likely going to require some radical restraint, perhaps even breaking up existing contracts for current retirees and tapping tax payers for additional revenues. The story has some how become lost in all the excitement over the New Tax Deal cobbled together between the White House and the lame duck Congress just a few weeks ago.
Source: Gluskin Sheff
Wake-Up Call: Top 10 Trends of 2011
Wake-Up Call: Top 10 Trends of 2011: "
"
After the tumultuous years of the Great Recession, a battered people may wish that 2011 will bring a return to kinder, gentler times. But that is not what we are predicting. Instead, the fruits of government and institutional action – and inaction – on many fronts will ripen in unplanned-for fashions. Trends we have previously identified, and that have been brewing for some time, will reach maturity in 2011, impacting just about everyone in the world.
1. Wake-Up Call In 2011, the people of all nations will fully recognize how grave economic conditions have become, how ineffectual and self-serving the so-called solutions have been, and how dire the consequences will be.
Having become convinced of the inability of leaders and know-it-all “arbiters of everything” to fulfill their promises, the people will do more than just question authority, they will defy authority. The seeds of revolution will be sown….
2. Crack-Up 2011 Among our Top Trends for last year was the “Crash of 2010.” What happened? The stock market didn’t crash. We know. We made it clear in our Autumn Trends Journal that we were not forecasting a stock market crash – the equity markets were no longer a legitimate indicator of recovery or the real state of the economy. Yet the reliable indicators (employment numbers, the real estate market, currency pressures, sovereign debt problems) all bordered between crisis and disaster.
In 2011, with the arsenal of schemes to prop them up depleted, we predict “Crack-Up 2011”: teetering economies will collapse, currency wars will ensue, trade barriers will be erected, economic unions will splinter, and the onset of the “Greatest Depression” will be recognized by everyone….
3. Screw the People As times get even tougher and people get even poorer, the “authorities” will intensify their efforts to extract the funds needed to meet fiscal obligations. While there will be variations on the theme, the governments’ song will be the same: cut what you give, raise what you take.
4. Crime Waves No job + no money + compounding debt = high stress, strained relations, short fuses. In 2011, with the fuse lit, it will be prime time for Crime Time. When people lose everything and they have nothing left to lose, they lose it.
Hardship-driven crimes will be committed across the socioeconomic spectrum by legions of the on-the-edge desperate who will do whatever they must to keep a roof over their heads and put food on the table….
5. Crackdown on Liberty As crime rates rise, so will the voices demanding a crackdown. A national crusade to “Get Tough on Crime” will be waged against the citizenry. And just as in the “War on Terror,” where “suspected terrorists” are killed before proven guilty or jailed without trial, in the “War on Crime” everyone is a suspect until proven innocent….
6. Alternative Energy In laboratories and workshops unnoticed by mainstream analysts, scientific visionaries and entrepreneurs are forging a new physics incorporating principles once thought impossible, working to create devices that liberate more energy than they consume.
What are they, and how long will it be before they can be brought to market? Shrewd investors will ignore the “can’t be done” skepticism, and examine the newly emerging energy trend opportunities that will come of age in 2011….
7. Journalism 2.0 Though the trend has been in the making since the dawn of the Internet Revolution, 2011 will mark the year that new methods of news and information distribution will render the 20th century model obsolete.
With its unparalleled reach across borders and language barriers, “Journalism 2.0” has the potential to influence and educate citizens in a way that governments and corporate media moguls would never permit. Of the hundreds of trends we have forecast over three decades, few have the possibility of such far-reaching effects….
8. Cyberwars Just a decade ago, when the digital age was blooming and hackers were looked upon as annoying geeks, we forecast that the intrinsic fragility of the Internet and the vulnerability of the data it carried made it ripe for cyber-crime and cyber-warfare to flourish.
In 2010, every major government acknowledged that Cyberwar was a clear and present danger and, in fact, had already begun. The demonstrable effects of Cyberwar and its companion, Cybercrime, are already significant – and will come of age in 2011. Equally disruptive will be the harsh measures taken by global governments to control free access to the web, identify its users, and literally shut down computers that it considers a threat to national security….
9. Youth of the World Unite University degrees in hand yet out of work, in debt and with no prospects on the horizon, feeling betrayed and angry, forced to live back at home, young adults and 20-somethings are mad as hell, and they’re not going to take it anymore. Filled with vigor, rife with passion, but not mature enough to control their impulses, the confrontations they engage in will often escalate disproportionately.
Government efforts to exert control and return the youth to quiet complacency will be ham-fisted and ineffectual. The Revolution will be televised … blogged, YouTubed, Twittered and….
10. End of The World! The closer we get to 2012, the louder the calls will be that the “End is Near!” There have always been sects, at any time in history, that saw signs and portents proving the end of the world was imminent. But 2012 seems to hold a special meaning across a wide segment of “End-time” believers.
Among the Armageddonites, the actual end of the world and annihilation of the Earth in 2012 is a matter of certainty. Even the rational and informed that carefully follow the news of never-ending global crises, may sometimes feel the world is in a perilous state. Both streams of thought are leading many to reevaluate their chances for personal survival, be it in heaven or on earth.
Regards,
Gerald Celente
for The Daily Reckoning
[Editor's Note: The above essay is excerpted from The Trends Journal, which is published by Gerald Celente. The Trends Journal distills the ongoing research of The Trends Research Institute into a concise, readily accessible form. Click here to learn more about and subscribe to The Trends Journal.]
Wake-Up Call: Top 10 Trends of 2011 originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called 'the most entertaining read of the day.'
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