The U.S. economic recovery has been weak and the looming fiscal cliff threatens to act as a further drag on the economy. Europe is imploding with the chances of a ‘Grexit’ increasing, and Spain’s economy deteriorating and risking contagion.
In his latest report “Charts With Dave”, bearish Gluskin Sheff economist David Rosenberg looks at the state of the U.S. and global economy and writes that the recovery isn’t where it should be.
“Three years into the aftermath of the worst recession since the 1930s, the global economy still cannot manage to expand organically — that is, without the need for ongoing life support from central banks and governments,” writes Rosenberg.
NOTE: Thanks to Gluskin Sheff for giving us permission to feature David Rosenberg’s charts.
The forecasts of monetary policy makers have higher variability due to incredible levels of uncertainty
There is a lack of firepower in this recovery. It's the first time on record that the U.S. economy has gone 11 quarters into a recovery but failed to post 4% GDP growth a quarter.
The second headwind is that the housing the vacancy rate is undergoing a long-term mean-reversion phase in which it could take a while before excess inventory clears out and supports prices
Given the high levels of corporate, household, and government debt across developed countries it appears odd that there's talk of an end to the deleveraging cycle
OECD countries have built up a mountain of debt and this time it isn't banks or mortgages but because of deficit financing
There are fewer safe havens and ratings agencies have been slashing credit rankings of sovereign governments
Many European nations have high government debt ratios. And there are wide divergences for bond yields, unemployment rates and economic growth
The U.S. in on a slippery fiscal slop and policymakers need to act now instead of kicking the can down the road
The looming fiscal cliff could shave 4 percentage points off real GDP growth. Even if half the expected restraint is pushed into the future the economy will likely stagnate next year
Despite calls from intelligentsia saying Europe could avoid a recession and that this would be contained to the periphery. But there are signs that the contraction is moving to the core
The gap between real and potential GDP is very wide and that's why many people think of this as a recession
Fed policy and core inflation best correlate with the direction of bond yields and right now both are conducive for lower long-term interest rates
The first of the baby boomers are no longer in their capital appreciation / aggressive growth part of the life cycle
Baby boomers have been choosing to sell during market rallies and rebalance their portfolios into more conservative strategies instead of chasing the market. Hybrid funds - mutual funds that have a mix of stocks and bonds - have become an attractive way to participate in the equity market
Since the housing bubble, baby boomers no longer see real estate as a retirement asset and intense deflation means that the average household is down 15% in net worth from five years ago
But expected returns have been adjusted to a 4 - 5% range and this is what buy and hold investors can expect from the market for public securities for the foreseeable future
Government transfers like welfare, social security etc to the personal sector accounts for a fifth of total household income
There is a big tax hit coming and its will impact high-income earners. This has already happened in Illinois and California
Entitlements will sooner or later be means-tested and mandatory retirement ages will also be changed
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