Mish & Max Keiser, Economic & Political Predictions for 2012

December 29, 2011 · Posted in Global Economics · Comment

Here are Mish’s predictions for 2012:

Severe European Recession as the sovereign debt crisis escalates: Austerity measures in Italy, Greece, Spain, and Portugal plunges all of Europe into a major recession. Spain and Portugal will follow Greece into an outright depression.

Political Crisis in Europe: French President Sarkozy loses to socialist challenger Francois Hollande. German Chancellor Angela Merkel’s coalition collapses. The Merkozy agreement is either modified to do virtually nothing or is not ratified at all. This chain of events will not be good for European equities or European bonds.

Relatively Minor US Economic Recession: The US will not avoid a recession in 2012. Retail spending ran its course with the tail-off into Christmas of 2011. The Republican Congress has little incentive for fiscal stimulus measures in 2012 so do not expect any. However, with housing already limping along the bottom in terms of construction and investment (not prices), a US GDP decline will not be severe. The US may see a recession even if GDP barely drops. Certainly the US recession will be far less severe than the recession in Europe and Australia.

Major Profit Recession in US: Profit margins in the US will be torn to shreds as businesses will be unable to reduce costs the same way they did in 2008 and 2009 (by shedding massive numbers of employees).

Global Equity Prices Under Huge Pressure: Don’t expect the same degree of reverse decoupling of US equities we saw in 2011. The US economy will be better than Europe, but equities globally will take a hit, including the US. Simply put, stocks are not cheap.

Fiscal Crisis in Japan Comes to Forefront: Japan’s fiscal crisis and debt to the tune of 200+% of GDP finally matters. The crisis in Japan will start out as a whimper not a bang, but will worsen as the year wears on. If Japan responds by monetizing debt, not a remote possibility at all, Japanese equities will massively outperform in nominal and perhaps even in real terms. “Real” means “yen-adjusted”, not “inflation-adjusted” terms.

Few Hiding Spots Other than the US Dollar: US treasuries and German bonds were safe havens in 2011, but with yields already depressed don’t expect huge gains. Expect to see a strengthening of the US dollar across the board against all major currencies. Moreover, cash (one the most despised asset classes ever), may outperform nearly everything, even if the dollar goes virtually nowhere. Hiding places will be few and far between for much of 2012.

US Public Union Pension Plans Under Attack: States finally realize the need to rein in pension plans much to the dismay of public unions. Social and economic tensions in the US rise.

Regime Change in China has Major Ramifications: China will start a major shift from a growth model dependent on housing and infrastructure to a consumer-driven model. The transition will not be smooth. Property prices in China will collapse and commodity prices will remain under pressure.

Hyperinflation Calls Once Again Will Look Laughable: Unless there is a major disruption in the Mideast (which I do not rule out by any means), oil prices will drop and food prices will follow. If so, we will once again see silly talk from the Fed about preventing “unwelcome drops in inflation”. As always, the deflation key is not prices at all but rather credit and credit marked-to-market. Expect credit in all forms to come under attack and expect junk bonds take a hit as well. By the way, regardless of what happens to oil prices, hyperinflation calls will look silly.

As always, out of all the experts out there, Mish’s predictions are probably the ones I would pay most attention to.

Tags: 2012 predictions, china, europe, gold, mike shedlock, mish

Mish on Deflation, Gold, Oil, Hyperinflation and more …

June 2, 2011 · Posted in General Economics · Comment

Mish is always a good read/listen for economic insight.

Tags: deflation, michael shedlock, mish

Mish on Tech Ticker on Stimulus & Markets

July 10, 2010 · Posted in General Economics, Investing · Comment

There’s no hotter debate right now than stimulus vs. austerity, as folks like Paul Krugman and even Barack Obama call for more spending to fix the economy.

Michael “MISH” Shedlock is not having any of it, arguing that the financial pump has failed, and that the only way to get the economy back on track is to pursue a policy of less government, and less spending, with a special focus on reforming pensions, public sector unions, and other institutions that drain the government of its resources.

As evidence: Japan. The country has now seen multiple decades of recession despite massive pumping on both the fiscal and the monetary side.

But at least Japan hasn’t had a debt crisis yet, right? The key word there, says Mish is “YET.” The fiscal situation in Japan is getting more and more tenuous, and it’s no sure thing that the market will retain its confidence in the Japanese government’s ability to finance its debt. And of course the same thing could happen here.

But for now in the US the big risk is deflation, which you can see in housing and other economic categories. Spending won’t solve this problem; actual economic adjustment is what’s needed to start growing again.

The bulls have pushed aside the bears on Wall Street — for now. Signs of optimism following three consecutive winning days in the stock market have replaced the doom and gloom mood so prevalent in the two prior weeks.

Having already heard the bullish case from Doug Kass and James Paulsen earlier this week, Tech Ticker decided to invite Mike “Mish” Shedlock, author of Mish’s Global Economic Trend Analysis, back on the show to hear the other side of the argument.

Is he bearish? You bet!

“The optimism out there is rather insane,” he says. There’s only a 15-20% chance of the market rallying, Mish tells guest host and Business Insider deputy editor Joseph Weisenthal. “It’s more likely we go down there and test the March lows, and there’s a decent chance actually that we break those lows,” he says.

Mish says “it is nuts to be net long” stocks right now in the face of all these headwinds:

– Slowdown in Europe as austerity measures take hold.

– Slowdown in U.S. as stimulus fades, housing remains weak, state and local governments cutback

– China looks to cool its economy in the face of growing housing bubble

Until Mish sees signs of sustainable job growth, he’ll be firm in his bearish stance. “Without a driver for jobs I don’t know how someone could be bullish on the stock market.”

If not stocks, then what?

Mish is sticking with what’s worked this year: Treasuries and gold. Treasury yields are still near record lows, but he think with the macroeconomy the way it is, it’s very possible, “the bull market in Treasuries is not over.” As for gold, he’d buy on the dips.

On Thursday, a slew of retailers posted monthly same-store sales. They were described best as a “mixed bag.” There was no obvious trend in terms of up or down, even within specific categories of retailers. But bulls on the economy should be disappointed.

For one thing, notes Mike “MISH” Shedlock author of Mish’s Global Economic Trend Analysis, the same-store sales gainers benefited by the general reduction in store locations. Essentially, survivorship bias is skewing the numbers. If somehow you could take into account all the locations that had been shuttered, you’d see that things were much worse.

And there’s evidence for this, notes Mish. State sales tax collections remain depressed, with no indication of a rebound. That, more than the corporate numbers, is the key thing to pay attention to.

And with states thirsting for cash, this is a crucial problem that will play out in terms of further budget cuts, and a further drag on the economy.

Ultimately it’s all about jobs. Without a jobs recovery, there will be no consumer recovery, and without a consumer recovery, there’s little reason to be excited about the market or the economy.

Tags: markets, mish, stimulus

Inflation or Deflation? Marc Faber vs. Mike “Mish” Shedlock

March 13, 2010 · Posted in General Economics · Comment

Once in a while you can observe a few minutes where people on mainstream news speak the truth. I treasure these moments …

Part 1: Mish & Faber discuss market outlook and see value in Japan

Part 2: Mish & Faber on Inflation or Deflation

In case you care about my humble views in next to these two brilliant titans, read my Inflation & Deflation Revisited.

Part 3: Mish and Faber agree “It’s too late to fix things”

Tags: deflation, inflation, marc faber, mike shedlock, mish

Money vs. Credit

April 19, 2009 · Posted in Monetary Economics · 5 Comments

Mish defines inflation and deflation as an increase/decrease of money and credit, respectively. He brings this issue up a lot in his posts, for example:

The logical outcome of the above discussion is that a proper definition of inflation or deflation must be built on the foundation of a sound definition of money supply that distinguishes between money itself and credit. The definition should also ensure that the horse and the cart are in their proper places.

The problem that I have with his explanations is that nowhere I have seen him make a clear and precise definition of what he means by money vs. credit.

The two don’t preclude each other. Money is the commonly accepted medium of exchange. Credit is the exchange of present goods against future goods. A money credit transaction it the exchange of present money against future money. Virtually all credit transactions are money credit transactions.

If new money is created via credit expansion, the money is injected by a central bank or fractional reserve banks via the purchase of a newly issued credit instrument, a claim to future money. Credit increases, just as money increases on the recipients bank account. When the money is repaid, money disappears from the recipient’s bank account, the credit instrument disappears from the bank’s balance sheet and the money supply, ceteris paribus, falls, just as credit falls.

If one catches the appearance of this newly created money and the disappearance thereof on individuals’ or businesses‘ bank accounts, the money supply is perfectly accounted for. The true money supply accomplishes just that. Thus it would suffice to say inflation/deflation is an increase/decrease in the true money supply, respectively.

Thus I am not sure what Mish is referring to when he talks about money vs. credit and so far I have not really found a sufficient answer in his posts. Nor have I received any satisfactory answers from him directly that addressed my concerns outlined above. What he could be talking about is maybe base money injected by the Fed vs. fractional reserve money created on top of the base money. If this is the case then he should refer to it in those terms to avoid confusion. If it is not, then I am still confused.

Any suggestions are appreciated.

Update: I have now dealt with this issue in my post Inflation & Deflation Revisited which clarifies the questions above.

Tags: mish, money vs credit, true money supply