Markets started the year with a bang to the downside. Equities, Oil and Bitcoin have all surprised in the opening weeks and the big dipper ride looks to intensify with even the mainstream media predicting gloom. We survey the global economic landscape and suggest practical advice for financial survival.
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Mon 18 January
Japan Revised Industrial Production m/m (expected: 1.4% previous: 1.4%)
Tue 19 January
China GDP q/y (expected: 6.9% previous: 6.9%)
China Industrial Production y/y (expected: 6.0% previous: 6.2%)
Wed 20 January
US CPI m/m (expected: 0.0% previous: 0.0%)
Thu 21 January
US Unemployment Claims (expected: 281K previous: 284K)
Fri 22 January
Canada Core CPI m/m (previous: -0.3%)
It used to be the domain of ZeroHedge’s band of Tyler Durdens and other uber-bear bloggers, but now even the mainstream media is peddling doomsday porn. Our primary message is to remain calm and unphased by the hype. Let’s examine the issues and determine exactly what we can – and should – do to survive the forecasted heavy weather.
During the past few weeks there has been a ramp-up in the amount of economic gloom emanating from CNBC, CNN, Bloomberg, and the like. Last November, their editorial line was still firmly in the US recovery paradigm. Now, they proclaim, the mother of all recessions is about to hit.
Needless to say, we couldn’t believe them when they were singing the praises of the Fed and its cunningly engineered US recovery, so why believe the current stream of hype? Let’s explore an example of the latest flavor of morose forecasting and then make sense of it all.
In an article entitled “A recession worse than 2008 is coming“, CNN contributor Michael Pinto covers a partial list of economic setbacks of the past six months:
1. Chinese equities crash
2. Chinese Yuan devaluation and debt
3. Outrageous US household debt vs. GDP ratio
4. US Federal government debt is 600% of its revenue
And these are the Pinto’s main exhibits for inferring a worse recession than 2008.
No mention of the ongoing global slowdown in production, of dollar strength tilting emerging markets into a downturn, or of the ongoing commodities rout and sub-$30 oil. No mention is made that US equities slipped 10% during the opening two weeks of the year. So, selective reporting, but at least the China-bashing remains a consistent thread.
Global Economic Outlook has covered all of these topics and more, during the past year, and my analysis columns had explored the fallout and misguided nature of Fed policy the year before. In other words, we served you the cold financial meltdown dish first – but that we did so earlier than most is not the point – financial meltdown is a serious matter and forces contingency planning, so responsible reporting is required. The curious aspect is that mainstream reporters had all the same facts at their disposal, all along, so why are they only reporting it now? And with such perverse enthusiasm?
The answer can be found in a manifest lag that exists between the mainstream and the real world, and in the mainstream’s policy to cater to their audience’s mood, rather than report events matter-of-factly.
From this perspective, it is interesting to note that the article discussed above, like so many now appearing in the mainstream, uses the word “deflation”. This is new.
The central banks and their mouthpieces don’t say “deflation”. They say “we have concerns about inflation”. And what they mean is that Consumer Price Index is failing to increase. Until circa 2000 the consensus financial definition of inflation was “an increase in money supply and credit”, but the current Mirriam-Websters definition is “an increase in the cost of goods and services”.
Since the definition of inflation has shifted from the cause to the effect, the cause is rarely discussed. If money is inflated, the effect is that the price of goods and service go up.
Money equals money supply plus credit.
The Fed has stopped printing money (QE), so the money supply part of US money is no longer being inflated. By raising interest rates, this past December, the Fed effectively decreased the availability of credit, so the credit part of money will deflate with each rate increase they apply. The Fed has planned four rates increases in 2016.
The net effect of Fed policy will be to deflate the US dollar and dollar denominated credit in the coming months and years. Deflation. The Fed announced this course of action in 2014, but we’re hearing the words “credit”, “debt” and “deflation” from the mainstream for the first time because they have only now cottoned on to what began unfolding over six months ago.
Socionomics has presented various studies that illustrate how mainstream news typically lags the real economy by 3-6 months. Hence, the fact that the mainstream feel an impulse to present negative news about the economy, at this time, lends weight to the argument that the global economy is already 3-6 months into a recession.
The manner in which the media is sensationalizing the recession, you’d think it was going to hit like a tsunami in the near future. The fact is, as we explored above, and have been reporting for several months, that the global economy is already in recession and decelerating. It is not sensational, and the point is made as a means of reassurance: there is no need to believe, or even pay mind to, the current wave of meltdown prediction blaring from the media.
With global recession already underway, what should investors and speculators do to ensure their financial survival? The plan of action is simple and remains unchanged from the advice we’ve been giving ordinary working people for the past year:
1) Reduce your living expenses to bare necessities and live within your means
2) Call in moneys owed to you and pay off or renegotiate debts
3) Do not store money in the bank, stash cash notes somewhere safe
4) Convert all equity and bond investments, as well as pensions to cash
5) Hold US dollar and bitcoin in equal amounts
6) If you don’t own a house or apartment already, prefer rental
7) Sit out the deflationary recession and plan to make significant purchases and business expenses in the new cheaper business cycle
This analysis is provided by xbt.social.
Global Economic Outlook is published every Monday on CCN.LA Readers can follow Bitcoin price analysis updates every day on CCN.LA
The writer trades Bitcoin. Trade and Investment is risky and subject to probability and market changes. CCN.LA accepts no liability for losses incurred as a result of anything written in this report.
Charts from TradingView, financial data & cartoon from Investing.com, image from Shutterstock.