Money and Finance
- Hussman Weekly Market Comment: Roach Motel Monetary Policy
Strong leading indicators such as the CFNAI and the Philly Fed Index have been weak for many months, and the deterioration in new orders has moved from a slowing of growth to outright contraction in recent months. In the order of events, a slowing in...
- Hussman Weekly Market Comment: How To Build A Time Machine
With industrial production, capacity utilization, real disposable income, real personal consumption, real sales retail and food service sales, and real manufacturing and trade sales uniformly declining in their latest reports, coincident economic indicators...
- Hussman Weekly Market Comment: Europe: Just Getting Warmed Up
Last week, the financial markets mounted a striking shift back to the "risk-on" trade, as investor concerns about a recession were abandoned, and Wall Street came to believe that Europe will easily contain its banking problems. Accordingly, downside protection...
- Hussman Weekly Market Comment: A Fragile Economic Outlook Continues
Last week, the markets responded to further evidence of a slowing in economic activity, including a further deterioration in new claims for unemployment. Given that the sharpest deterioration in leading economic measures such as our Recession Warning...
- Hussman Weekly Market Comment: Brief Holiday Update
Given current household leverage from mortgage and consumer debt, coupled with the inability to access mortgage equity withdrawals (that largely fed spending increases during the most recent economic expansion), my concern continues to be that unemployment...
Money and Finance
Hussman Weekly Market Comment: Deflationary Boom?
The defining feature of the present market and economic environment is incompatibility, juxtaposing weakness in emerging markets, materials, and inflation-protected securities with strength in equities and the U.S. dollar, a spike in interest rates, and an unusually steep yield curve in Treasury securities. The underlying thesis here couples a theme of deflation with a theme of robust economic strength. Taken together, the financial markets have priced a wide range of assets on the assumption that the U.S. is on the verge of a deflationary boom. Most likely, part of this scenario is wrong.
On Friday, bonds fell, stocks rallied and the U.S. dollar surged on strength in the June non-farm payroll report. While employment is widely understood to be a lagging, not leading indicator of the economy, the report would be worthy of enthusiasm if it was also coupled with strength in leading economic measures and coincident/lagging measures. We observe little evidence of that at present. Indeed, while both the establishment and household surveys showed job growth in June, the composition detail in the household survey was hardly an indication of a robust economy, with a loss of 240,000 full-time jobs offset by a 360,000 gain in employees reporting that they usually work part-time. Fully 352,000 of this increase fell into the category of “part time for economic reasons (slack work or business conditions).”
We can make sense of the “deflationary boom” thesis only if we consider various pieces in isolation, rather than as a cohesive whole. With Europe still in a recession, and an acute relapse of credit concerns in Portugal in recent days, Mario Draghi at the European Central Bank reached for the only tool still at his infinite disposal – words – to promise that interest rates would be held at zero for a significant length of time. In China, debt servicing problems are emerging in corporate and local government debt following years of unproductive overinvestment in still-vacant buildings, and attempts to slow the rapid, low-quality credit growth has quickly been met by strains on liquidity and economic growth. Coupled with the better-than-expected employment numbers, at least on the surface, Wall Street has chosen China and Europe to make the deflation case, and the perception of U.S. economic growth as the basis for a “cleanest dirty shirt” argument for the U.S. dollar and U.S. equities. In effect, Wall Street is singing “We are the world… so the rest of the world can sink into the sea.”
- Hussman Weekly Market Comment: Roach Motel Monetary Policy
Strong leading indicators such as the CFNAI and the Philly Fed Index have been weak for many months, and the deterioration in new orders has moved from a slowing of growth to outright contraction in recent months. In the order of events, a slowing in...
- Hussman Weekly Market Comment: How To Build A Time Machine
With industrial production, capacity utilization, real disposable income, real personal consumption, real sales retail and food service sales, and real manufacturing and trade sales uniformly declining in their latest reports, coincident economic indicators...
- Hussman Weekly Market Comment: Europe: Just Getting Warmed Up
Last week, the financial markets mounted a striking shift back to the "risk-on" trade, as investor concerns about a recession were abandoned, and Wall Street came to believe that Europe will easily contain its banking problems. Accordingly, downside protection...
- Hussman Weekly Market Comment: A Fragile Economic Outlook Continues
Last week, the markets responded to further evidence of a slowing in economic activity, including a further deterioration in new claims for unemployment. Given that the sharpest deterioration in leading economic measures such as our Recession Warning...
- Hussman Weekly Market Comment: Brief Holiday Update
Given current household leverage from mortgage and consumer debt, coupled with the inability to access mortgage equity withdrawals (that largely fed spending increases during the most recent economic expansion), my concern continues to be that unemployment...