ABRAHAM GULKOWITZ
abe@gulkowitz.com
917-402-9039
2014 issue 17September 23, 2014
Serrated Edges
Despite the strong consensus view that the U.S. is on a stronger economic footing than a year ago, and clearly working with stronger momentum than other major economies, the scary array of possible flashpoints in the U.S. and certainly overseas will continue to hauntpolicymakers and the markets. U.S. labor markets have improved over the past year. Yet a range of indicators continue to point tosignificant underutilization and slack in U.S. labor conditions, particularly meager wage gains and adverse labor market participation rates.Europe will not make much positive contributions to global growth in 2014, and forward trends point to numerous downside risks even for 2015. U.S. re-engagement in Iraq, and tensions in Ukraine will also punctuate the outlook with intermittent bouts of uncertainty. Concernsabout waning Chinese growth are suppressing demand for commodities, limiting Latin America’s upside and has come with a surge in theU.S. dollar. These conflicting developments highlight the awkward challenges the Fed faces in charting a tightening posture, and in steeringmarket expectations on the future course of interest rates.
After years of being doped up on cheap money stimulus, and growing comfortable in the belief that the Fed would never forsake the bull market that it created by dropping the cost of credit to the lowest levels in human history, investors are indenial. The percentage of bears in the Investors Intelligencesurvey has dropped to levels (13.3 percent) not seen since 1987.Morgan Stanley is calling for the S&P 500 to climb 50 percentto 3,000 by 2020. Heady times, to be sure.
A number of the largest activists are raising billions of dollars, in an effort to take advantage of their increasing clout in boardrooms
EU Widens Sanctions on Russia
The EU extended sanctions on Russia in an effort to target those dealing with the separatists
Oil Glut Ignites Gasoline Price Swoon
Markets
Are
Signaling
That
More
Relief
at
Pump
May
Be
on
the
Way
A sustained period of relatively low gasoline prices could help bolsterthe consumer
‐
driven U.S. economy, which has posted wobbly growththis year. Many policy makers remain concerned about the outlook,with a disappointing August jobs report adding to jitters. By paying lessatthepump,consumers coulduse thecashtomake otherpurchases.
Some traders said short-term-oriented players have been lightening up on stocksholdings in recent days, taking profits after the market's recent run and in somecases positioning for volatility that might result from any change in the FederalReserve's messaging on interest rates.
China's economic engine sputtered in August asindustrial production growth slowed to its lowest levelsince the 2008 global financial crisis, according to datareleased last Saturday, increasing the chance that Beijingwill step up stimulus measures to bolster the world'ssecond-largest economy. Economists said the sharpdeceleration in industrial output, along with weakerfixed-asset investment, retail and real estate sales data, islikely to rattle regional sentiment…
Moscow warns against panic as ruble plunges to historic lows
Fed renews zero rate pledge, but hints at steeper rate hike path
IMF warns of emerging markets slowdown
EM growth stalled in the wake of thefinancial crisis and has continued to falland unlike in advanced economies the IMFdoes not forecast a recovery
Bubble Stage of This Bull Market May be Nigh
The PunchLine...
2September 23, 2014
In This Issue
Headlines and data appearing in The Punch Line came from widely available publications including national and international newspapers, trade journals, economic and industrial bulletins and news websites.
•
Engines of Growth
U.S. recovery, the additional easing in the EU, and the timing of the Fed
’
s policy shift continue to dominate across the globe. A more robust growth trajectory is widely assumed for all regions. But deep-seated weaknesses have also become more evident. Very obvious financial vulnerabilities, repercussions from various regional political stalemates and serious geopolitical concerns are aggravating the problems of clearly insufficient growth in the world economy. And let
’
s not forget that many of the challenges cannot be resolved easily … (pg 6)
•
Households…
(pg 7)
•
The Return to Normal…
(pg 8)
•
You Can
t Handle the Truth…
(pg 9)
•
Credit…
(pg 10)
•
Credit II…
(pg 11)
•
A New Geography of Business…
(pg 12)
•
Pumping Iron …
(pg 13)
•
Go Figure…
(pg 14)
•
The DNA of Business…
(pg 15)
•
Tech and the Business Cycle…
(pg 16)
•
Real Estate and Construction…
(pg 17)
•
Will Life Ever be the Same?
(pg 18)
•
Fractured Times…
Despite the strong consensus view that the U.S. is on a stronger economicfooting than a year ago, and clearly working with stronger momentum thanother major economies, the scary array of possible flashpoints in the U.S. andcertainly overseas will continue to haunt policymakers and the markets. U.S.labor markets have improved over the past year. Yet a range of indicatorscontinue to point to significant underutilization and slack in U.S. labor conditions, particularly meager wage gains and adverse labor marketparticipation rates. Europe will not make much positive contributions to globalgrowth in 2014, and forward trends point to numerous downside risks even for 2015. U.S. re-engagement in Iraq, and tensions in Ukraine will also punctuatethe outlook with intermittent bouts of uncertainty. Concerns about waningChinese growth are suppressing demand for commodities, limiting Latin America’s upside and has come with a surge in the U.S. dollar. Theseconflicting developments highlight the awkward challenges the Fed faces incharting a tightening posture, and in steering market expectations on thefuture course of interest rates. (pg 1)
•
InThisIssue
(pg 2)
•
Dislocation, Dislocation…
(pg 3)
•
Which Way is Up?…
(pg 4)
•
The Likelihood of Unlikely Events...
(pg 5)
Contact information:
Abraham Gulkowitz
phone: 917-402-9039
email:
abe@gulkowitz.com
The PunchLine...
3September 23, 2014
Dislocation, Dislocation, Dislocation
The debate over Germany's insistence oneuro-zone austerity has flared anew as anailing France continues to demand economic stimulus. The European CentralBank may now be siding with Paris,leaving Merkel looking increasingly alone
IMF Chief Sees Slower Global Growth
The global economic growth is likely to be slightly above 3 percent this year in the face of geopolitical risks, InternationalMonetary Fund Chief Christine Lagarde said in an interview withthe French daily Les Echos. The growth is likely to be between 3and 3.5 percent, she said. Growth is uneven as some countriesstarted growing faster than others. The IMF is set to release itsnext World Economic Outlook in October. Earlier theWashington-based lender estimated 3.4 percent global growth for this year. Lagarde noted that geopolitical crisis in Ukraine islikely to impact Germany and other neighboring nations.Lagarde said France should stick to its deficit reduction measuresdespite low inflation. She also urged Germany to support publicspending on infrastructure which would also help its neighboringnations.
U.K. financial markets tumble on fear of Scotland splitting
The practice of using debt to repurchase shares has become so widespread and aggressive — no wonder,since executive compensation is often tied to stock price and earnings per share metrics that benefit fromreduced share counts — that it is believed to be limitingactual physical investment in plants and equipment.
The world is facing a global jobs crisis
that is hurting the chances of reigniting economicgrowth and there is no magic bullet to solve theproblem, the World Bank warned… In a studyreleased at a G20 Labour and EmploymentMinisterial Meeting in Australia, the Bank said anextra 600 million jobs needed to be createdworldwide by 2030 just to cope with theexpanding population. "And equally disturbingly,we're also seeing wage and income inequalitywidening within many G20 countries, althoughprogress has been made in a few emergingeconomies, like Brazil and South Africa."
A below-par recovery in the U.S. and the continued fragility of theeuro zone means that risk assets are "mispriced", the Organizationfor Economic Cooperation and Development has warned. In itsInterim Economic Assessment last week, the Paris-based research body became the latest body to suggest markets are at risk of asudden correction, stressing that the current bullishness appeared "atodds" with the "intensification of several significant risks.“ TheOECD forecast the U.S. would grow by 2.1 percent this year, downfrom its May projection of 2.6 percent growth. For 2015, the groupexpects the U.S. economy to grow 3.1 percent, down from earlierestimates of 3.5 percent. The euro area has also been downgradedfrom 1.2 percent growth in May to 0.8 percent and 1.1 percent fornext year and the stubbornly slow growth in the region is the most"worrying feature" of the OECD's projections.
Free-market era in Sweden swept away as feminists and greens plot new path
Investors
pull
£17bn
from
UK
as
banks
ratchet
up
Scottish
independence
pressure
Net flows out of Britain hit $27.3bn (£16.8bn) in August, the highest seen since the financial crisis
RBS and Lloyds Banking Group warn of possible relocation to London, if Scottish voters back breakaway from the UK
Fears of higher U.S. interest rates areprompting fund managers to cut back oninvestments in emerging markets. For now,investors still are moving into developingmarkets, though the pace has moderated.Emerging-market stocks and bonds received $9billion from investors in August, compared with an average $38 billion a month betweenMay and July, according to the latest data fromthe Institute of International Finance. Butafter months of heavy buying in such places asBrazil and India, lured by the prospect of higher returns than in the Western world,investors are taking a more cautious stance.
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