The new recession is arriving?
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The stock market went up today
A recession is coming but damage this time from ‘artificial hibernation by government diktat’ may prove shortlived, say economists.
Probably it is like Richard Wolff has said: The crisis was overdue, we are already in the middle of another capitalist crisis, now they call it recession before they used to be called depressions, probably, it sounds nicer
Relevant comment in Granthan’s prediction by Simon Nixon in today’s Times (of London). He says that there is no doubt that there is a bubble (pointing the soaring price of Bitcoin among other things but
“the big question is whether it is possible for the current bubble to burst without triggering a crisis. Jeremy Grantham, the founder of GMO asset management and one of the most respected Wall Street watchers, earlier this month likened the current situation to the South Sea Bubble or the global financial crisis of 2008. But not all market corrections result in crises; neither the stock market burst of 1987 nor 1994 led to a deep recession.”
A point to bear in mind.
I’m not sure how this relates but the banks are awash with liquidity but are declining to lend. Is it because they perceive any returns? That government bonds are more profitable? Maybe someone explain that a bank’s business is to lend and borrow.
That disproves the theory (held among others by currency cranks) that loans are supply-led, by banks creating them. In fact, it’s the other way round. The level of bank lending depends on the demand for loans, obviously viable demand (ie that will be repaid with interest) and this depends on the prospect of the borrowers making enough profit to repay the loan with interest. Apparently at present there is not enough demand for viable loans for banks to meet. As that link says:
“Perhaps banks have learned their lessons from the last crisis too well. After being bailed out with public money and taxed with tough oversight, they have little reason to lend to borrowers who might not repay. Meanwhile, many business owners don’t actually want to borrow on terms banks are prepared to offer. The Federal Reserve found that even before Covid-19, less than half of small businesses had used a bank to raise money in the past five years. Of those who applied for financing, around half got what they asked for.”
The central bank can make as much money available as they like to commercial banks in a bid to increase lending and so economic activity but, as the old saying goes, you can take a horse to water but you can’t make it drink. The banks won’t drink because there are not enough viable borrowers and there are not enough viable borrowers because there are not enough prospects for profit-making. Result: banks use the extra money to speculate on the stock market driving up prices there.
As insightful as always, ALB.
Another story came on my radar.
Goldman-Sachs
The asset management business, fixed income division, and investment bank – which earns fees for advising clients on deals and corporate fundraising – produced a near doubling of third-quarter profit to $3.6bn. Those divisions have benefited from a recovery in merger and acquisition activity, which stalled at the start of the pandemic, and from US stock markets hitting fresh record highs in the latter half of 2020. It has given Credit Suisse a reason to be bullish on Goldman’s earnings, with that bank’s own analysts recently upgrading profit forecasts to $7.4bn.
An article trying to take on the two biggest topics of today
In the US it is a call for a return to FDR’s New Deal
In the UK it is a call for a return to 1945
He forgot to mention one advantage for the CBI — that during that time strikes were illegal and that the government (Labour) used this power to prosecute strikers.
https://www.nationalarchives.gov.uk/cabinetpapers/alevelstudies/1951-cabinet-memorandum.htm
The topic thread may have been premature and perhaps a post-pandemic bounce might be expected but the warning signs are still there.
Guo Shuqing, head of the China Banking and Insurance Regulatory Commission, said markets in the US and Europe were trading at high levels which “runs counter to the real economy”. Guo said: “I’m worried the bubble problem in foreign financial markets will one day go pop.”
https://www.independent.co.uk/news/business/ftse-100-stock-market-latest-china-bubble-b1810219.html
Signs emerged over the weekend that China’s economic surge may be running out of steam. The country is one of few to have avoided recession during the pandemic but the latest data showed factory growth slowed in February.
https://www.aljazeera.com/economy/2021/3/18/are-we-on-the-verge-on-a-new-commodity-supercycle
In the usual business cycle, demand pushes prices up, and supply increases to try to capture that windfall, sending prices down again. In a supercycle, supply is so inadequate to demand growth that prices rise for years, even a decade or more.
The Biden Bounce, the Pandemic Bounce, call it what you will but the bubble is still growing.
The bigger they are, the harder they fall
https://americancompass.org/essays/speculating-wall-street-investment/
It is a right-wing web-site but it shares in what Marxists say about the present economic stagnation.
It is a long detailed article, a lot of it over my head but the main point if i’m correct is that American capitalists are not investing enough in fixed capital or manufacturing despite the cuts in taxes and low interest rates which should be spurring those things but instead speculating on the stock-market because that is where the big short-term profits are and rewarding themselves by paying out high dividends.
“…Whereas corporations used to retain and reinvest roughly half of their earnings that share has fallen below 10%, with the rest paid out to shareholders…”
“…if $1 trillion in annual buybacks indicates that “there are in fact no better investments to be made, and the corporate sector simply has no use for this vast sum,” then this “calls into question the viability of the free market capitalist system itself…”
“…when we talk about investment generally, from Wall Street. Most of what we call investment today is the acquisition of an asset. When a private equity firm buys a company, it has not invested, it has traded a pile of money for a pile of equity…”
“…One cannot eat, or even cruise the San Francisco Bay on, a stock certificate. The asset valuations that exist on paper today rely on an assumption that the nation’s corporations can and will employ the nation’s workforce in pursuit of increasing productivity and profitability in the decades to come. Recent evidence suggests otherwise, and the trajectory of investment suggests absolutely not…”
Still the bubble gets bigger and bigger
Equity funds have attracted more than half a trillion dollars in the past five months, exceeding inflows recorded over the previous 12 years…A record $576 billion has flown into equity funds since November — more than the $452 billion seen in the last 12 years combined, all thanks to ultra-easy monetary policies and unprecedented stimulus…valuations are at the highest since the dotcom bubble of the late 1990s
“You should definitely be worried about valuations and all the more so when people start justifying extremely high valuations,” said Fahad Kamal, chief investment officer at Kleinwort Hambros.
Some of those worries have seeped in, with investors loading $120 billion-plus into cash funds in the last three weeks. But equity asset allocations are still at a record…
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