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The Future: Stagnation
everything I see indicates we are presently in a recession or soon will
Yet, the stock market continues to act as if there are only fair skies
Please note chart #1 below as an example. Although the S&P 500
not gone anywhere over the last five months, you can see earnings (as
the economy) since the first of the year have grown weaker. Another
possible weakness is chart #2. One can see there is a long relationship
Federal tax receipts and the economic cycle. This seems to be a rather
leading indicator. So, if the stock market refuses to decline in the
economic weakness, what could be the reason? Answer is maybe one or all
1. The Federal Reserve will come to the rescue.
2. The Federal government will inject spending into the economy.
3. The economy is about to turn strong again.
I don’t believe any of the three would be of benefit at this stage of the game. Why? Too much debt and little to no increase in productivity. Various things work, until they don’t. Papering over prior recessions and not allowing them to clear the playing field has its dark side.
There will be a better day. I don’t expect the end of the world. However, good growth (+3%) on a sustainable basis is not in the cards. Total returns on stocks are bound to be 0-2% as far as one can see. On the other hand, the good news is there is little to no inflation for years ahead—baring a world war—which means low real growth and will be acceptable to many.
The following charts #3 and #4 give one another look at the debt problem, which gets worse every day. How will this change? I’m sorry to say, not much. Debt is a killer.
Adapted from zerohedge.com
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