Mish's Global Economic Trend Analysis

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• Central Bank Balance Sheets: What Will They Look Like in 2016-2017?
• Economists Chase Tails and Tales, Cut GDP Estimates Again
• Trade Deficit Widens to $48.3 Billion, Up From $41.8 Billion; iPhone Connection

Central Bank Balance Sheets: What Will They Look Like in 2016-2017? Posted: 06 Oct 2015 07:07 PM PDT Reader Gary emailed a link to JP Morgan's Quarterly Market Guide. Here are a pair of charts from page 19 that caught my eye. Central Bank Policy Rates Current Rates Bank of England: 0.50% Bank of Japan: 0.10% Fed: 0.00%-0.25% (currently 0.14%) ECB: 0.05% Central Bank Balance Sheets Three Questions Other than asset bubbles, what do we have to show for this? Will the ECB follow Japan to "Nirvana"? When do asset sheet balances approaching 100% of GDP matter? Mike "Mish" Shedlock Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Economists Chase Tails and Tales, Cut GDP Estimates Again Posted: 06 Oct 2015 11:43 AM PDT Tail Chase In the wake of recent economic data, economists at the IMF and Deutsche Bank lowered their growth estimates. IMF Cuts Forecast Again Like a dog running in futile circles hoping to catch its tail, the IMF does the same thing with its perennially over-optimistic assessment of everything from emerging markets to the G7 economies. Reuters reports the IMF cuts global growth forecasts again, citing commodity and China worries. The International Monetary Fund cut its global growth forecasts for a second time this year on Tuesday, citing weak commodity prices and a slowdown in China and warned that policies aimed at increasing demand were needed. The Fund, whose annual meeting starts in Peru this week, forecast that the world economy would grow at 3.1 percent this year and by 3.6 percent in 2016. Both new forecasts are 0.2 percentage point below its July forecast and are 0.4 percentage point and 0.2 percentage point below its April outlook, respectively. The downgrades come after central banks in major industrial economies have cut rates to near zero and spent around $7 trillion in quantitative easing programs in the seven years since the global financial crisis. Despite these measures, investment, growth and productivity are stuck below pre-crisis levels and there is a lack of consumer demand. Among major economies, the United States is expected to grow by 2.6 percent in 2015 and by 2.8 percent in 2016, the Eurozone is forecast to grow by 1.5 percent and 1.6 percent, respectively, with Japan seen at 0.6 percent and 1.0 percent. Deutsche's "Weatherman" Cuts Growth Outlook Citing today's trade deficit report (see Trade Deficit Widens to $48.3 Billion, Up From $41.8 Billion; iPhone Connection), Deutsche Bank's chief US economist Joseph LaVorgna joins the IMF in a tail-chasing exercise. ZeroHedge reports LaVorgna Throws In The Towel On US Economy As Deutsche's "Weatherman" Cuts Growth Outlook. One of the biggest permabulls on the Street is apparently turning bearish as Deutsche Bank's chief US economist Joseph LaVorgna throws in the towel after taking a look at August trade date. Here's the call: "We are reducing our estimates of Q3 and Q4 real GDP growth due to a significant deterioration in net exports. Based on the complete August international trade data—we received the advance report last week—US exports are expected to be unchanged in the quarter. This is down from a 5.1% annualized increase in Q2, which followed a -6.0% West Coast port- and weather-related decline in Q1. At the same time, imports are on track to increase 10.0% in the quarter, the fastest gain since Q4 2014. This would have the effect of widening the trade deficit by $64 billion, which equates to a negative 160 basis-point annualized drag on Q3 output relative to our prior estimate. Recall that in Q1 2015, net exports subtracted 192 bps off real GDP growth. In response to today's trade data, we have lowered our Q3 real GDP growth forecast to 1.7% from 3.0% previously, and our forecast for Q4 real GDP growth has been trimmed from 3.0% to 2.3%. This has the effect of lowering 2015 real GDP growth, as measured on a Q4 over Q4 basis, from 2.6% to 2.1%. Moreover, we are cutting our 2016 forecast as well, albeit more modestly for reasons we will discuss in today's US Daily Economic Notes. Real GDP growth for 2016 (Q4/Q4) is now projected at 2.7%, down three tenths from our earlier estimate." LaVorgna's Tail-Chasing Exercise Until today, LaVorgna had been predicting 3% third quarter GDP growth, a fairy tale number never approached in the Atlanta Fed GDPNow Model. Today, the Atlanta Fed model forecast actually rose, having taken into account the advance trade numbers on September 29. Note that the Atlanta Fed model was never above 1.8% whereas LaVorgna was at the top end of the most recent "Blue Chip" consensus. More than likely, LaVorgna's tail-chasing exercise is not over. Evolution of GDP Forecast On September 29, the GDPNow model declined from 1.8% to 1.1% with the advance foreign trade numbers. Following auto sales and today's more complete trade numbers, the model forecast is back to 1.1%. The GDPNow forecast fell as low as 0.7% on October 2, following the dismal jobs report. (Please see Payroll Disaster: Establishment Survey +142K Jobs, Employment -236K; Labor Force -350K; 59K Downward Revisions). Tale Chase Economists not only chase "tails", they also chase "tales" with each "tale" a bit less optimistic than the preceding one, yet still too optimistic. Mike "Mish" Shedlock Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Trade Deficit Widens to $48.3 Billion, Up From $41.8 Billion; iPhone Connection Posted: 06 Oct 2015 09:53 AM PDT Today the US Commerce department report on International Trade in Goods and Services shows the trade deficit rose by $6.6 billion to $48.3 billion. The numbers are for August, very backwards-looking given it is now October. August exports were $185.1 billion, $3.7 billion less than July exports. August imports were $233.4 billion, $2.8 billion more than July imports. Balance of Trade Since August 2013 Balance of Trade Moving Average iPhone Connection The increased deficit was widely expected, in line with the Bloomberg Economic Consensus of -48.6 billion. A surge in imports of new iPhones helped feed what was an unusually wide trade gap in August of $48.3 billion, well up from July's revised $41.8 billion. But cell phones, at $2.1 billion, make up only a portion of the gap with a drop in exports the most salient factor. Exports were down nearly across the board including industrial supplies at minus $2.2 billion, consumer goods at minus $0.6 million, autos at minus $0.5 million, and foods/feeds/beverages at minus $0.3 million. Weakness in exports reflects weakness in foreign demand together with the strength of the dollar. The goods gap came in at $67.9 billion, which is up from last week's advance reading of $67.2 billion. The petroleum gap, which is always a central factor in the nation's deficit, fell to $6.9 billion from July's $8.1 billion and reflects lower prices. Demand for the nation's services, unlike its goods, continues to climb, to a surplus of $19.6 billion vs $19.5 billion in a reflection of demand for technical and managerial services. By country, the gap with China, the main source of iPhones, rose sharply, to $35.0 billion from $31.6 billion. The gap with Mexico widened to $5.3 from $3.4 billion. Other bilateral data are mostly steady though the gap with the EU narrowed to $13.8 from $15.2 billion. Imports are a subtraction on the national accounts but are, nevertheless, a two-way street, that is reflecting demand at home which is a sign of economic strength, not weakness. Still these results will limit expectations for third-quarter GDP. Actually, this was pretty much factored into third quarter GDP estimates when the "advance numbers" came out last week. And these numbers, already way late, frequently sport huge revisions. Once again, GDP is a very lagging number. Mike "Mish" Shedlock Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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