Is The Stock Market Swoon Foretelling Recession?

Investors Business Daily ^ | 01/11/2016 | Robert Samuelson

[expat_panama]

It's hard not to wonder: Is the stock market telling us something? True, the market's record in forecasting recessions is horrendous. Stocks often move according to whim or fad. But just because the market is wrong much of the time doesn't mean it's wrong all the time.

Could last week's turbulent trading be one of the times it's right?...

Behind this chain reaction is a huge transfer of economic power from advanced countries (mainly North America, Europe and Japan) to "emerging-market"...

The trouble is that their growth is slowing...

One is high debt levels...

The other problem is the legacy of the boom in commodities --oil, grains, metals...

The China bubble has popped. Price indexes have dropped...

Here's the picture that emerges: Over-borrowing has decelerated growth in many emerging-market countries. To offset that, China may be devaluing its currency -- the yuan -- to improve the competitiveness of its exports. In advanced nations, growth seems stuck between 1% and 2% a year.

With so much weakness, the world economy is vulnerable...

There are skeptics....

...Very little of the labor market is connected to the rest of the world through trade."

Exports constitute only 13% of U.S. GDP; the other 87% reflects domestic demand. In December, payroll employment expanded by a strong 292,000...

Large losses could cause a negative "wealth effect": When people feel poorer, they spend less (similarly, when they feel richer, they spend more)...

To the crucial question -- does the market foretell a recession? -- there's not yet a conclusive answer. How much China slows and how the rest of the world responds are open issues. American stocks may have overreacted. Whatever happens, this is not your father's business cycle.

[expat_panama]

Did the recession ever end? It's hard to know the truth, because IMHO one cannot trust the numbers...

My take is that the numbers are just fine but it's what all the usual morons are saying about them is what's bogus.  The facts are all there for everyone to see and reality is that life is pretty good.  All this doom'n'gloom on these threads is from clowns that just loooove to wallow in their own precious little misery puddles. 

Yeah, I know that the economy's contracting --the reason being that employment's down so everyone's trying to do the employees a favor by killing all the employers.  Bad idea. np for me tho, I just have to do all my hiring in secret...

[palmer]

Exports are good in general. Exports are bad in a few specific cases when the rest of the world falls into recession. Now may be one of those times (or may not). As for 87%, that all depends on how much of that spending is on productivity tools and how much on throwaway consuption. There is a gray area in between.

[expat_panama]

Exports, if actually up to 13% of the US economy is a big deal... Historically, it has been 10% or less so even a 3% drop back to historical levels...

Huh, you're right.  Those are the tallies from the BEA, that as a % GDP U.S. exports are at an all time high:

...Maybe this is how the Fed gets the printed money out of the US...

That's about the silliest possible explanation as for why all the Fed-printed-money did not cause inflation.   Foreigners don't use dollars, they got foreign money.  When the buy U.S. goods w/ dollars it's dollars they'd just gotten selling other stuff to us.  The real reason the Fed-printed-money did not cause inflation is that everyone stuck the money in banks that never loaned it back out..

[expat_panama]

Exports are good in general.

I'm really not sure why any one kind of econ activity could be more sacred in God's sight than some other kind, but at any rate you must be pretty happy about the fact that current exports are at an all time high.

[expat_panama]

Market is so manipulated (by the Gov't and Big Money)

Yeah and when workers of the world unite and throw off their chains blah blah blah.  We hear that cr@p from Rush all the time but meanwhile us grownups buy and sell as we see fit.  Whenever those "Gov't and Big Money" types try to interfere we just sit back til they get bored and wander elsewhere --then we go back to our buying and selling just like before.

[r_barton]

So you are feeding billions into the stock market or have computers that trade in fractions of a second on every stock price change. Good for you, then you can compete on a even footing. ;-)

[palmer]

Well this was a surprise to me

I figured our exports were higher after WWII and were dropping since, but it is basically the opposite.

[palmer]

Putting aside good/bad, I had no clue that our exports were near an all time high. My guess was the opposite. But I suppose that comes from a globaized economy. Net exports are negative, but that’s obviously no surprise thanks to China’s export oriented economic policies.

[SampleMan]

When it comes to economics, politicians are always convinced that they "need to do something", worse they think they actually can.

Every times since the mid 80's the Fed has tried to fix recessions by lowering interest rates. The effect has been to corrupt the natural capital market and in all likelihood extend the recessions.

But note that there has never been enough economic momentum to get the rates back to where they were, and during this last one we bounced around on the floor at 0%.

Now the next recession is starting and there is no room for the Fed to drop rates, unless they start paying people to take their money.

[Darksheare]

Also the one “may you live in interesting times.”

[SampleMan]

There are two ways to look at that chart, and I think the correct one is that we used to produce a lot more of our own consumption.

Where our production used to be geared mainly toward servicing the largest consumer market in the world (us), it is now geared toward catering to niche world markets, such as jumbo jets and construction equipment.

[Prov1322]

Only report todays is JOLTS - Job Openings (maybe someone here can explain what that is...).

BLS report...Number of job openings during the reported month, excluding the farming industry

Job Openings and Labor Turnover Summary (JOLTS)

[1Old Pro]

We have been in a recession the entirety of the Obama socialist Presidency.

[palmer]

The gross exports chart needs to be paired up with the net exports chart:

Not that the net exports are "bad" because it still depends on whether the imports are more disposable consumption or productive investment. Obviously there is a mix. We import quite a bit of throwaway time-sink junk, but we also import tools to enhance our productivity.

[expat_panama]

Tx!

Don’t know about anyone else but I sure learn new stuff here...

[Prov1322]

Don’t know about anyone else but I sure learn new stuff here...

On occasion all this stuff rattling around my skull can actually be useful...on occasion...

[expat_panama]

since the mid 80's the Fed has tried to fix recessions by lowering interest rates.

What I'm seeing is that the reason the Fed was created way back when was (besides 'lender of last resort') stable prices; that's what they had the tools for and what they got good at.  It wasn't til the late '70's that a misguided congress decided that the Fed was supposed to give everyone jobs too.  Yeah, I like jobs, but I also like sex and I don't think Yellen should be in charge of that either --but I digress. 

For years after the folks at the Fed kind of rolled their eyes and just said that stable prices was the best way to have lots of jobs so it was just business as usual.  In fact, they made it clear (like in '82) that if they had to hike rates to stop inflation they would, and to hell w/ jobs.  What I see that's different is that now we got the Yellen gang talking like they actually believe they can create jobs --so they hiked rates in Dec. because their story had it that their low rates made all the jobs we needed so now we could raise rates so we could lower them later when we wanted more jobs--  imho pure insanity.

[webheart]

All this doom'n'gloom on these threads is from clowns that just loooove to wallow in their own precious little misery puddles.

it's hard to know what to say to a statement like that. I wonder what your situation in life is like compared to many who are so full of doom and gloom. Personally, I feel like I am doing just fine. But there are others who would be but aren't. For instance, i was one of 6 kids, all of who were employed in their early twenties. I have 4 kids, none of who are employed, even into their thirties. Maybe it means I was a horrible parent. I wonder.

Excuse me, I have to wallow some more.

[expat_panama]

Net exports are negative, but that's obviously no surprise thanks to China...

Lots of people say that, and then they turn right around and do their own buying and selling as they see fit w/o ever first checking w/ Xi Jinping for instructions.   For example I made a big profit on Chinese stocks and I used the proceeds to buy Chinese chips for my computer.  That made two things, a bigger so-called "trade deficit" and it created more wealth in the U.S.

The only thing the Chicom gov't did was to not stop me --the way Chairman Mao used to do.

[central_va]

Buying product made in foreign country creates wealth in the foreign country.