The Economy Is Cooked

Last week, European Central Bank chief Mario Draghi conceded: "The growth cycle may have peaked"

Of course, those paying attention to the data already knew this. Our politicians and central planners have been peddling to us the fantasy that the global economy is strengthening, finally ready to fire on all cylinders after nearly ten years of dependence on monetary stimulus.

That just ain't so.

Generating this growth, meager as it is, has required a tremendous amount of new debt. So much more so that the US will soon have a worse debt-to-GDP ratio than perennial fiscal basket-case Italy:
In five years, the U.S. government is forecast to have a bleaker debt profile than Italy, the perennial poor man of the Group of Seven industrial nations.


The U.S. debt-to-GDP ratio is projected widen to 116.9 percent by 2023 while Italy’s is seen narrowing to 116.6 percent, according to the latest data from the International Monetary Fund.

Looking back across the past 50 years, we can clearly see that the 2008 Great Financial Crisis was a turning point. That was the moment where our addiction to exponentially increasing our debts began to have real consequences.

The chart below clearly shows that, since then, we've been in an era of diminishing returns in exchanging debt for growth:


What can ride to the rescue at this point? Not much. Our 'recovery' since 2008 is now one of the longest on record; another recession will occur sooner or later (Fannie Mae (OTCQB:FNMA) head economist Doug Duncan thinks one will likely arrive by next year).

Rising interest rates will only accelerate the advance of a recession.

And with the arrival of recession, what will our leadership do? The only thing it knows how: print, borrow and deficit spend in attempt to boost 'growth.' Except the debt will be even more expensive this time, and its ability to generate incremental growth per unit of new debt even weaker.

https://seekingalpha.com/article/4164723-economy-cooked?ifp=0
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The are 3 "Ultimate issues" driving current Economic Events -
1) Popuplation
2) Energy
3) Climate Change

And there is nothing that Politicians can do now, to successfully change what is coming!

The Pension Crisis Is Worse Than You Think

"Today, the hard stop is five to 10 years away, within the career plans of current officials. In the next decade, and probably within five years, some large states are going to face insolvency due to pensions, absent major changes.

The next phase of public pension reform will likely be touched off by a stock market decline that creates the real possibility of at least one state fund running out of cash within a couple of years. The math says that tax increases and spending cuts cannot do much."

But the problem is not just in the United States but the mismanagement of assets, combined with irrational and flawed return expectations, has spread globally.

"According to an analysis by the World Economic Forum (WEF), there was a combined retirement savings gap in excess of $70 trillion in 2015, spread between eight major economies…

The WEF says the deficit is growing by $28 billion every 24 hours - and if nothing is done to slow the growth rate, the deficit will reach $400 trillion by 2050, or about five times the size of the global economy today."

While we all want to ignore the problem, it isn't going away. More importantly, there is nothing that can, or will, change the two primary problems fueling the crisis.

Problem #1: Demographics
One of the primary problems continues to be the decline in the ratio of workers per retiree as retirees are living longer (increasing the relative number of retirees), and lower birth rates (decreasing the relative number of workers.) However, this "support ratio" is not only declining in the U.S. but also in much of the developed world. This is due to two demographic factors: increased life expectancy, coupled with a fixed retirement age, and a decrease in the fertility rate.



In 1950, there were 7.2 people aged 20-64 for every person of 65 or over in the OECD countries. By 1980, the support ratio dropped to 5.1, and by 2010, it was 4.1. It is projected to reach just 2.1 by 2050.

Problem #2: Markets Don't Compound
The biggest problem, however, is the continually perpetrated "lie" that markets compound over time. Pension computations are performed by actuaries using assumptions regarding current and future demographics, life expectancy, investment returns, levels of contributions or taxation, and payouts to beneficiaries, among other variables. The biggest problem, following two major bear markets, and sub-par annualized returns since the turn of the century, is the expected investment return rate.

By over-estimating returns, it has artificially inflated future pension values and reduced the required contribution amounts by individuals and governments paying into the pension system.

Pensions STILL have annual investment return assumptions ranging between 7% and 8% even after years of underperformance.

However, the reason assumptions remain high is simple. If these rates were lowered 1-2 percentage points, the required pension contributions from salaries, or via taxation, would increase dramatically. For each point reduction in the assumed rate of return would require roughly a 10% increase in contributions.

Therefore, pension managers are pushed to sustain better-than-market return assumptions which requires them to take on more risk.
But therein lies the problem.

Given real-world return assumptions, pension funds SHOULD lower their return estimates to roughly 3-4% in order to potentially meet future obligations and maintain some solvency.

They won't make such reforms because "plan participants" won't let them. Why? Because:

1. It would require a 40% increase in contributions by plan participants which they simply cannot afford.

2. Given that many plan participants will retire LONG before 2060, there simply isn't enough time to solve the issues, and;

3. The next bear market, as shown, will devastate the plans abilities to meet future obligations without massive reforms immediately.

We Are Out Of Time
Currently, 75.4 million Baby Boomers in America - about 26% of the U.S. population - have reached or will reach retirement age between 2011 and 2030. And many of them are public sector employees. In a 2015 study of public sector organizations, nearly half of the responding organizations stated that they could lose 20% or more of their employees to retirement within the next five years.

If the numbers above are right, the unfunded obligations of approximately $4-$5.6 trillion, depending on the estimates, would have to be set aside today such that the principal and interest would cover the program's shortfall between tax revenues and payouts over the next 75 years.
That isn't going to happen.

It's an unsolvable problem. It will happen.

https://seekingalpha.com/article/4166196-pension-crisis-worse-think?ifp=0
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The are 3 "Ultimate issues" driving current Economic Events -
1) Population
2) Energy
3) Climate Change

The Great Slowdown?

Summary
There are signs that world economic growth is slowing down, although it's not clear whether this is just a blip or the beginning of a more lasting trend.

Lower growth would be especially toxic if accompanied with higher rates and a higher dollar.

Equities seem to be pricing in at least some of these possibilities as they failed to rally despite a stellar earnings season.

The simple truth is that the data coming out of the world economy point to a slowdown in growth, perhaps even a notable slowdown. Here is some of the data suggesting a notable slowdown:

UK growth declined to a six-year low of just 0.1%
German industrial production dropping fast
German PMI declined to a five-month low
French growth slowed down to 0.3% in Q1
World trade is contracting
Commodity prices (apart from energy) are falling


And here is a bit of a scary picture, especially considering the eurozone big fall in the surprise index (that is, data generally surprised on the downside):


Now, the US is still holding up pretty well, although that in itself is actually not good enough, given the large fiscal stimulus that entailed.

Causes
There are enough possible suspects that could cause a slowdown:
Monetary tightening
Higher oil

Monetary tightening is real and is happening mostly in the US where there is a combination of increasing quantitative tightening and fairly rapidly rising interest rates.

On top of that, we have significantly higher oil prices which is creating a $800B headwind for the world economy this year.
https://static.seekingalpha.com/uploads/2018/4/29/saupload_fut_chart_thumb1.ashx

Risks
US fiscal stimulus
Trade war
Even higher oil prices (Iran, Venezuela)
Higher dollar
One of the more worrying signs is that the large US fiscal stimulus doesn't seem to produce much in the way of increased US growth, at least not yet.

Slower world growth, higher rates, a rising dollar are all possible negatives for stocks, especially in combination.

Conclusion
Clouds have appeared on the equity landscape. There are signs global growth is softening, although it remains to be seen whether it is just a rough patch (due to the unusually cold weather for instance) or a more lasting slowdown.

A more lasting slowdown could do serious damage to the equity markets, especially if accompanied by rising rates and a rising dollar.

The markets seem to be pricing in at least something of such a scenario as equities have failed to rally despite one of the best earnings seasons in quite some time.

https://seekingalpha.com/article/4167433-great-slowdown?ifp=0
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Whilst US Stocks have GROWN by 377% since March 2009, the US GDP has only grown 131% from the end of 2008 $14.719Trillion, to $19.387 Trillion at the end of 2017.

The largest reason for this US Growth, was the INCREASE IN US DEBT BY 201% over the same period, with DEBT INCREASING FROM $10.025 TRILLION AT THE END OF 2008, TO $20.245 TRILLION AT THE END OF 2017!

That said, there are 3 "Ultimate issues" driving current Economic Events -
1) Population - Slowing & Aging
2) Energy - Supply & Pricing
3) Climate Change - Likely to further Adversely affect our capacity for an increasing Population.

AND, added to the above, is the "recent Political (almost ALL) Attempts" to "HIDE REALITY, WITH ILLUSIONS", Primarily by DRIVING DEBT HIGHER!

Watch out Perceptions Now.

Your 'Economy' here is about to have a very 'sly' drop.
You'll hardly notice it at first, until 'gravity' takes over.
All designed to be sacrificed to keep the USA Market Floating (USA: a 4th World Economic Nation, even if Trump is a good businessman, etc) for the upcoming WAR.

Don't worry. Immigration to Australia has dropped drastically and will continue to do so. Tourism has also dropped (as Australian Tourism is as rip-off poor quality as the USA Medical system) here.

Of course, the domino effect: Real Estate will stagnate and even the Building Industry will find it hard to justify building anything except 'upgrades'.

Fear not. This is the 'Fall' that Australia has had to have since Paul Keating 'usurped' (dirt under the carpet). War will soon put an end to it all. After-which, Australia will 'boom' in more ways than one via both Population explosion and Economic abundancy (due to all the 'over-achievers' turning this country into the world's most successful 'internet SCAM' to ever infect the world with  ).

So get ready PN.
The slide starts ...now. 

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Jasin wrote on May 5^th, 2018 at 1:23pm:


The data says otherwise



Our exchange rate was $1.10 USD in 2011 but now it is 75c US so we have become significantly cheaper

Jasin wrote on May 7^th, 2018 at 12:37pm:


Wrong again Jasin

Population Growth of Sydney
Year              Population      Growth rate
2011      4.029 million      n/a
2012      4.293 million      6.55%
2013      4.76 million      10.88%
2014      4.85 million      1.89%
2015      5.05 million      4.12%
2016      5.25 million      3.96%
2017      5.37 million      2.29%

http://www.population.net.au/sydney-population/

So your claim about a drop in tourism and immigration are completely wrong
Jaysin you can't just make things up and expect to get away with it

Signs Of The Next Recession

The bad news about the next recession: most economists won't predict it. The worse news: the few forecasters who will accurately predict the next recession will also be predicting recession for years of prosperity.

Economists (including myself) did not predict the 2008-09 recession, nor the recessions of 2001, 1990, or 1982. However, we did anticipate the 1980 recession - which we thought would be mild. Oops.

Initial claims for unemployment insurance 1967-2018

Unemployment claims: Initial claims for unemployment insurance tend to be a leading indicator, perhaps by assessing the number of people who need to cut back on current spending.

There is no simple method that reliably forecasts recessions without false alarms. However, these leading indicators bear watching.

https://seekingalpha.com/article/4170983-signs-next-recession?ifp=0
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IN FACT, Politicians (almost all) & Others (including Economists, Business & Unions) are & have been closing down the Local & Global Economy, for quite some time, BY VIRTUE (or lack of it) OF THEIR ACTION/S or LACK OF PROPER ACTION/S, IN NOT ADDRESSING THE 3 PRIMARY ECONOMIC DRIVERS -
1) Population - Slowing Global Growth & Aging.
2) Energy - Global Supply & Pricing.
3) Global Climate Change - Likely to further Adversely affect our capacity, for an increasing Population.

AND Yes, "this time is Different", in Cause, Effect & Duration!