- While not as dire as the recent analysis by Deutsche Bank which calculated that a recession over the next 12 months is more than likely, with odds rising to 60%, overnight JPM released its latest recession probability analysis, and – somewhat unexpectedly following the last two stellar job reports and a full court political press that the recovery has rarely been stronger going into the election – now sees a 37% chance of a recession in the next 12 months. This is the highest recession probability calculated by Jamie Dimon’s bank during the current economic cycle, and matches the odds first laid out in early July.
- While the rising odds of a US recession are not surprising on their own, what is notable is that even JPM highlights the disconnect between the economy and the financial markets, observing that “as risk markets have rallied somewhat since our last update, the probability from the model based on macroeconomic data is now considerably above our models based on financial markets“, confirming once again how distorted the relationship between the markets, supported by central banks, and the underlying economy has become.
Read more at:Recession Odds Spike To 37%, JPM Calculates, Highest Yet For This Cycle
- Would Another $4 Trillion In QE Work?
- Just recently, David Reifschneider, deputy director of the division of research and statistics for the Federal Reserve board in Washington, D.C., released a staff working paper entitled“Gauging The Ability Of The FOMC To Respond To Future Recessions.”
- The conclusion was simply this:
“Simulations of the FRB/US model of a severe recession suggest that large-scale asset purchases and forward guidance about the future path of the federal funds rate should be able to provide enough additional accommodation to fully compensate for a more limited [ability] to cut short-term interest rates in most, but probably not all, circumstances.”
- In other words, the Federal Reserve is rapidly becoming aware they have become caught in a liquidity trap keeping them unable to raise interest rates sufficiently to reload that particular policy tool. As I have discussed in recent weeks, and below, there are an ever growing number of indications the U.S. economy is currently headed towards the next recession.
- He compares three policy approaches to offset the next recession.
- Fed funds goes into negative territory but there is no breakdown in the structure of economic relationships.
- Fed funds returns to zero and keeps it there long enough for unemployment to return to baseline.
- Fed funds returns to zero and the FOMC augments it with additional $2-4 Trillion of QE and forward guidance.
- In other words, the Fed is already factoring in a scenario in which a shock to the economy leads to additional QE of either $2 trillion, or in a worst case scenario, $4 trillion, effectively doubling the current size of the Fed’s balance sheet.
- Here is the problem with the entire analysis. It assumes a normalized economic environment in which the Federal Reserve has several years before the next recession AND that large-scale asset purchases actually create economic growth. Both are likely faulty conclusions.
- First, the current economic expansion is, by many measures, extremely long and is currently pushing the fourth longest expansion in history. Interestingly, this expansion is also the weakest of any expansion previously.
Read more at:Another Warning Sign
- If there was any confusion about how the lower half of the US consumer class is doing these days, it was quickly lifted following today’s distressing earnings calls of dollar store titans, Dollar General and Dollar Tree.
- Discount retailer Dollar General said it was cutting prices on its most popular items such as bread, eggs and milk, intensifying a price war among already commoditized products with retail giant Wal-Mart Stores to win back falling market share. It shares fell the most on record, plunging by 18% after the company missed on revenue, blaming aggressive competition, lower food prices and reduction in SNAP, or food stamp, coverage in 20 key states.
- It’s larger ultra-discount rival Dollar Tree Inc also reported lower-than-expected sales, sending its shares down 10%, the biggest dollar drop decline since going public in 1995.
Read more at:“Things Are Worse” – Dollar Stores’ Startling Admission: Half Of US Consumers Are In Dire Straits
- The recent DC Leaks, of over 2,500 documents from George Soros NGOs, has shed a bright light on how the billionaire uses his vast wealth to create global chaos in an never ending push to deliver his neo-liberal euphoria to the peasant classes.
- While Soros has managed to thoroughly destabilise the European Union by promoting mass immigration and open borders, divided the United States by actively funding Black Lives Matters and corrupting the very corruptible US political class, and destroyed Ukraine by pushing for an illegal coup of a democratically elected government using neo-nazi strong men…one country that Soros has not bee able to crack has been The Russian Federation.
- Russia’s political pragmatism and humanist value system rooted in a traditional, “nation-state” culture most likely infuriates Soros.
- Russia is Soros’ white whale… a creature he has been trying to capture and kill-off for nearly a decade.
- Unfortunately for Soros (and fortunately for the entire planet) the Russian government realised the cancerous nature of Soros backed NGOs, and took the proper preventative measures…which in hindsight, and after reviewing the DC Leaks memos, proved to be a very wise move.
- On November 30th 2015, ZeroHedge reported,
Russian Prosecutor General’s Office issued a statement in which it recognized George Soros’s Open Society Institute and another affiliated organization as “undesirable groups”, banning Russian citizens and organizations from participation in any of their projects.
–prosecutors said the activities of the Open Society Institute and the Open Society Institute Assistance Foundation were a threat to the foundations of Russia’s Constitutional order and national security. They added that the Justice Ministry would be duly informed about these conclusions and would add the two groups to Russia’s list of undesirable foreign organizations.
According to RT, prosecutors launched a probe into the activities of the two organizations – both sponsored by the well-known US financier George Soros – in July this year, after Russian senators approved the so-called “patriotic stop-list” of 12 groups that required immediate attention over their supposed anti-Russian activities.
Read more at:Leaked Memo Exposes George Soros’ Plan To Overthrow Putin & Destabilize Russia
- Deutsche Bank’s war of words with the ECB is not new: it was first unveiled in February when, as we wrote at the time “A Wounded Deutsche Bank Lashed Out At Central Bankers: Stop Easing, You Are Crushing Us.” Europe’s largest bank, with the massive derivatives book, then upped the ante several months later in June, when its chief economist Folkerts-Landau launched a shocking anti-ECB rant in which it warned of social unrest and another Great Depression.
- Ironically, these infamous diatribes hurt more than helped: telegraphing to the market just how hurt DB was as a result of the ECB’s monetary policy, the market punished its stock, which has been recently trading within spitting distance of all time lows, in effect making Deutsche Bank’s life even harder as it now has to contend not only with its own internal profitability problems, but also has to maintain a market-facing facade that all is well. So far, it has not worked out very well, prompting numerous comparisons to another infamous bank.
- So, in what may have been DB’s loudest cry for help against the ECB’s unwavering commitment to rock-bottom interest rates, the bank’s CEO, John Cryan, warned in a guest commentary ahead of the Handelsblatt Banking Summit titled, appropriately enough “Banks in Upheaval”, to be held in Frankfurt on August 31 and September 1, that “monetary policy is now running counter to the aims of strengthening the economy and making the European banking system safer.“
- However, his most striking warning was not aimed at Mario Draghi, but at Germany itself – and ostensibly his own clients – implicitly suggesting that if Deutsche Bank goes down it is taking everyone down with it, when, as cited by Bloomberg, he warned of “fatal consequences” for savers and pension plans while “companies refrain from investments due to ongoing uncertainty and demand less loans.”
Read more at:Deutsche Bank CEO Warns Of “Fatal Consequences” For Savers
- In July 1944, just weeks after the successful Allied invasion of Normandy, hundreds of delegates from around the world gathered in Bretton Woods, New Hampshire to determine the future of the global financial system.
- The vision was simple: America would be the center of the universe, and every other nation would revolve around the US.
- This arrangement ultimately led to the US dollar being the world’s dominant reserve currency which still remains today.
- Whenever a Brazilian merchant pays a Korean supplier, that deal is negotiated and settled in US dollars.
- Oil. Coffee. Steel. Aircraft. Countless commodities and products across the planet change hands in US dollars, so nearly every major commercial bank, central bank, multi-national corporation, and sovereign government must hold and be able to transact in US dollars.
- This system provides a huge incentive for the rest of the world to hold trillions of dollars worth of US assets– typically deposits in the US banking system, or US government bonds.
- It’s what makes US government debt the most popular “investment” in the world, why US government bonds are considered extremely liquid “cash equivalents”.
- As long as this system continues, the US government can continue to go deeper into debt without suffering serious consequences.
- Just imagine being totally broke… yet every time you want to borrow money there’s a crowd of delighted lenders eager to replenish your wallet with fresh funds.
- This may be the US government’s #1 advantage right now.
- You’d think that they would be eternally grateful and take care to never abuse this incredible privilege.
- But no… not these guys.
- In fact, they’ve done the exact opposite. Over the last eight years the US government has gone out of its way to eliminate as much of this benefit and alienate as many allies as possible.
- They’ve abused the trust and confidence that the rest of the world placed in them by racking up record amounts of debt, waging indiscriminate wars in foreign lands, and dropping bombs on children’s hospitals by remote control.
- They’ve created absurd amounts of regulations and had the audacity to expect foreign banks to comply.
- Plus they’ve levied billions of dollars worth of fines against foreign banks who haven’t complied with their ridiculous regulations.
- (Last week, for example, New York state financial regulators fined a Taiwanese bank $180 million for not complying with NY state law.)
- And they’ve threatened to banish any foreign banks from the US financial system who don’t pay their steep fines.
Read more at:Barack Obama May Have Finally Destroyed America’s #1 Advantage
- Syria’s Foreign Ministry, which has the backing of Russia and as of last week, China, condemned Turkey’s military incursion against an Islamic State-held Syrian town near its border, aided by aircraft from a U.S.-led coalition, as a breach of its sovereignty, Syrian state television reported. It added that any counter terrorism operations inside its borders had to be conducted in coordination with Damascus and accused Ankara of launching the incursion to replace Islamic State with “other terrorist groups” a reference to rebels.
- There has already been speculation that Turkey’s latest incursion into Syrian territory has little to do with the stated purpose of cleansing ISIS forces close to its border following this weekend’s Gaziantep suicide bombing which was promptly blamed on ISIS, and is merely the latest escalation in Erdogan’s ongoing conflict with militant Kurdish forces located in the region.
- As reported earlier, Turkish special forces, tanks and jets backed by planes from the U.S.-led coalition launched their first co-ordinated offensive into Syria on Wednesday to try to drive Islamic State from the border and prevent further gains by Kurdish militia fighters. Turkish tank units and Syrian rebels backed by the NATO member crossed into northern Syria to push Islamic State out of the border town of Jarablus, military sources said.
- “Euphrates Shield”, named after the river running nearby, is Turkey’s first major military operation since the abortive coup. It was the first time warplanes from Turkey have struck in Syria since November, when Turkey downed a Russian warplane near the border, and the first significant incursion by Turkish special forces since a brief operation to relocate the tomb of Suleyman Shah, a revered Ottoman figure, in February 2015. The operation comes four days after a suicide bomber suspected of links to the group killed 54 people at a wedding in the southeastern city of Gaziantep.
- Turkey’s President Tayyip Erdogan said the operation was targeting Islamic State and the Kurdish PYD party, whose gains in northern Syria have alarmed Turkey. Ankara views the PYD as an extension of Kurdish militants fighting an insurgency on its own soil, putting it at odds with Washington, which sees the group as an ally in the fight against Islamic State.
Read more at:Turkey Invades Syria, Syria Condemns Turkish Invasion As “Breach Of Sovereignty” While Joe Biden Meets With Erdogan