December 19, 2010
What to expect in 2011
I didn't have time to put together a detailed post for today. But fortunately, I see that Bill McBride has done a much better job than I could of summarizing what to look for in 2011.
Posted by James Hamilton at December 19, 2010 04:12 PMdigg this | reddit
Looking at McBride's list make me think how little will change a year from now. It brings to mind poetry about the doldrums, not analysis:
"Day after day, day after day,
We stuck, nor breath nor motion;
As idle as a painted ship
Upon a painted ocean."
The Rime of the Ancient Mariner
Samuel Taylor Coleridge
Where's the wind when you need it most?
Posted by: Mark A. Sadowski at December 19, 2010 05:16 PM
Time to dust off the prophecies of the Delphi pythia.
There will be good music at last!
The cinematographic industry will rediscover the content of dialogues as a mean of communication.
Poetry and literature will remain in a doldrum,as the financial industry,public and private accounts will remain the subjects of attention.
The ongoing decade themes of finance will survive and the paradox of St Petersburg its keystone.The game has been gradually transfered from private sectors, to public accounts,to central banks.
Central banks endeavors will remain the same,immunize their domestic economies against exogenous chocks.
Central banks currencies swaps agreements will deny the assets prices,currencies,current accounts rebalancing requirements.
The professional society will show a growing impatience.
The financial industry will pursue its role of "Der Pfeifer von Hammel"
K Marx yawning, is waiting for the thinning middle class to join hands with the less favored population.
Posted by: ppcm at December 19, 2010 09:49 PM
Oil will go up above 100 (beginning of 2011) - 150 USD (middle of 2011) as soon as February- March 2011 and possibility derail US economy, although it may be that QE2 will be the reason to move USD money into the oil first, and than oil price will derail economy , so it will be QE2 that will stoke recovery in 2011.
Posted by: Ivars at December 20, 2010 02:37 AM
December 16, 2010
During his hour-long radio interview on the Alex Jones show today, broadcast over GCNLive.com, longtime Alaska oil reserves expert Lindsey Williams told Alex that he’d learned recently from two of this longtime friends, both retired top executives of major oil producers, that the price of crude oil, now rising again, is slated to move to $150-200 per barrel soon.
Posted by: Ivars at December 20, 2010 02:54 AM
?Slated to move"? That's a little imprecise. Is it meant to imply that oil execs have $150-$200/bbl as a forecast, or as a target toward which they intend to actively shove oil prices? It kinda matters which it is.
Posted by: kharris at December 20, 2010 07:41 AM
Funny, virtually every oil executive I know say that they can not forecast the price of oil.
I use to be friends with the Chief Economist of Shell Oil in London and they were not allowed to forecast. Rather, they presented multiple forecast to management and could not say which one they favored or thought most probable.
Posted by: spencer at December 20, 2010 09:01 AM
Predictions for 2011
Real private final sales will again decelerate from the post-'00 trend rate of ~0.5-0.6% by Q1-Q2, falling even further below the labor force growth rate, and then contract later in Q3-Q4.
The ECRI WLI will decline in Q1 to and then below 124, resulting in a renewed and "unexpected" deceleration of the WLI growth rate back below zero, prompting ECRI to caution that the US economy is vulnerable later in '11.
The price of oil above $80 will absorb all or more of the anticipated "stimulus" from the payroll tax holiday.
The stock markets of Brazil, Australia, Japan, and China will enter bear markets ahead of the US and EU and be confirmed by Coppock Curves turning negative in Q1-Q2. Shanghai and Brazil's stock markets face 50%+ declines, whereas the Nikkei could make a new nominal low in the next 2-3 years.
China's economy will begin an "unexpected" deceleration which will be perceived in retrospect in a few years as the beginning of the end of the "China miracle", which will result in the Great China Crash (and Indian Implosion) after China created the largest credit and fixed investment bubbles in the history of the world.
One or more US states and municipalities will declare de facto or actual bankruptcy. The Fed will begin buying municipal and state GO bonds to bail out these entities and financial institutions vulnerable to municipal and state defaults.
The US unreal estate market will resume what will be another ~20% price decline into '12-'13, resulting in more than half of all US mortgagees being underwater. By the mid-'10s, US household unreal estate values will have fallen to replacement costs of structures (with the replacement costs falling), wiping out over half of remaining unreal estate equity, which will total half of US gov't agency obligations or equivalent to 100% of unreal estate loan value on banks' balance sheets. Any mortgages being written for more than 75-80% LTV is effectively a pre-foreclosure or negative equity document.
The Fed will accelerate QE2 and buy further out the yield curve as the Fed effectively monetizes a larger share of US gov't issuances via primary dealers. The money multiplier and M2+ velocity will plunge further, and even more so against private GDP.
Initial jobless claims will resume increasing to above 500,000 in the first half of '11, and the U rate will accelerate after Q1-Q2 to above 10%.
The S&P 500 is now as overvalued (10-yr. avg. P/E, Q ratio, market cap/GDP, long-term peak reported earnings/GDP, dividend discount, etc.) as at any time during the peak of secular bull markets going back 140 years, save for the peak in '00. The yoy rate for the S&P 500 will turn down toward 0% and negative later in Q1 or in Q2, with the Coppock Curve turning negative sometime in the first half of '11, confirming the onset of a cyclical bear market and resumption of the debt-deflationary secular bear market trajectory. The historical self-similar secular bear market precedent implies that the S&P 500 could fall to the 400s-500s by '12-'13, or as low as the 300s should global debt and price deflation be particularly severe and the US$ Index rally to par or above.
Whether or not total nominal or real aggregate US spending will contract in '11 with a fiscal deficit of 15% or more of private GDP and be reported as an official recession is irrelevant; what is most important is what happens to the post-'00 and post-'08 avg. trend rates of private real final sales, and what this implies for private investment, production, and employment along the way.
In the above context, Peak Oil, the Boomer demographic drag effects, and the end of the China Miracle will mean US real final sales per capita simply cannot grow, and the Fed cannot print nor the gov't borrow and spend to create cheap liquid fossil fuels to allow for growth of economic activity.
The critical lesson is that secular bear markets during debt-deflationary regimes historically are periods of liquidation, capacity consolidation, and consumption of wealth accumulated during the preceding secular bull market regime. Central banks and gov'ts cannot print and borrow and spend away debt/asset deflation. Debt must be paid down, written off, or a combination of the two, and wealth and capacity must be consumed over time to allow for an eventual resumption of sustainable investment, production, and wages from a level of debt and asset values supported by organic or domestic resources. We have a VERY long way to go in terms of time and prices to arrive at a future level of sustainable economic activity, including total gov't spending much lower than today.
Posted by: Nemesis at December 20, 2010 10:18 AM
On the upside: Retail sales have been growing strongly, and that's historically a very good predictor of employment. We could add 3 million jobs next year, unemployment falling to the low 8's. Households have managed a decent amount of deleveraging, and some of them will be ready to spend again.
On the downside: State/local govt's will be firing. Oil prices could drain a lot of money out of the economy. What happens if we go directly from a demand-deficient deflationary recession to a supply-shock inflationary recession, without a full recovery in between?
Posted by: lilnev at December 20, 2010 12:40 PM
This all may make Sarah Palin look like a prophet in late 2011. Especially in the energy independence questions, but also FED actions to steer interest rate profits back to big banks and choke the rest of the USA economy. Who would by American pick-up trucks with gas 4-5USD/gallon at pump? Solid platform to beat Democrats in 2012 for anyone. Obama should be worried about FED' s actions, but by now its probably already too late. Illusions if they existed go bust, reality settles in. That is not what the Utopians like.
Posted by: Ivars at December 20, 2010 11:10 PM
Will there be any spillover from rising inflation rates in China and elsewhere?
This was actually a rather humorous question the way it is worded. China's renminbi is essentially linked to the dollar so the FED is actually driving both US and China moneatry policy. That being the case doesn't it seem strange to ask about spillover from China rather than spillover from the US to the rest of the world.
Posted by: Ricardo at December 21, 2010 08:16 AM
The Survey of Professional Forecasters (SPF) predicted in 2009 Q2 that real GDP growth, core PCE and unemployment would be 2.9%, 1.4% and 9.7% respectively in 2010 Q2. The actual record was 1.7%, 1.0% and 9.6% respectively
They predicted in 2009 Q3 that real GDP growth, core PCE and unemployment would be 2.9%, 1.4% and 9.7% respectively in 2010 Q3. The actual record was 2.5%, 0.8% and 9.6% respectively.
They predicted in 2009 Q4 that real GDP growth, core PCE and unemployment would be 2.9%, 1.4% and 9.8% respectively in 2010 Q4. We're still waiting for the final numbers but you should already detect the pattern.
Recently the SPF has been consistently overpredicting RGDP growth and core PCE inflation and has been right on the mark in terms of unemployment.
What are they currently predicting for 2011 Q4? They are forecasting 2.9% RGDP growth, 1.3% core PCE and 9.0% unemployment. Let's see if the pattern holds up.
If so I have one word to say: doldrums.
Posted by: Mark A. Sadowski at December 21, 2010 02:54 PM
Nemesis -- You can't have a crash in China and the BRICs and $150 oil at the same time, can you?
Posted by: Skipuke at December 22, 2010 07:53 AM
I just noticed that RGDP growth was revised today up to 2.6% in 2010 Q3.
But of more interest, core PCE got revised down to 0.5%, the lowest quarterly showing in the series' history.
Not so much as a cloud in the sky, but that doesn't stop the hyperinflationistas from constantly forecasting hurricane force winds.
Posted by: Mark A. Sadowski at December 22, 2010 03:50 PM