The International Monetary Fund (IMF) is taking the scalpel to its global growth forecast.
Market Roundup
Again.
The international forecasting, advisory and lending group now expects the world economy to grow just 3.2% this year. That’s 0.2 percentage points less than it forecast in January.
If you feel like you’ve seen this movie before, that’s because you have. This is the IMF’s fourth straight outlook cut in the past year.
Regionally, the IMF cut its forecast for U.S. growth by 0.2 points to 2.4%. It lowered its outlook for the eurozone by 0.2 points to 1.5%. It slashed its projection for Japan by 0.5 points to 0.5%, and its forecast for the U.K. by 0.3 points to 1.9%.
Chief Economist Maurice Obstfeld also seemed to wake up on the wrong side of the bed, judging from his language in the release. He warned that the world economy was reaching “stalling speed,” coping with “widespread secular stagnation,” facing a “return of financial turmoil” and a “self-confirming negative feedback loop,” and having “no longer much room for error.”
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| The IMF slashes its global economic outlook. |
So clearly the IMF believes that seven-plus years of interest-rate cuts, ZIRP, NIRP, QE-infinity, currency devaluation, LTROs, TLTROs, and all the other monetary hocus-pocus has worked, right? Er … no. If it did, we wouldn’t continually get gloomy talk and downgrade after downgrade to their growth forecasts.
Why isn’t any of that stuff working? Simple. We’re at the wrong point in the economic and credit cycle! Several years of easy-money policies have already inflated all the asset and behavior bubbles they can, and those bubbles simply can’t be pumped up anymore. We’ve reached – or actually, passed – the tipping point.
[Read More – The Consequences of Reckless Lending – Mike Larson]
Lenders don’t want to lend aggressively anymore because loan losses are rising, borrower credit quality is starting to deteriorate, and collateral values in sectors like autos and commercial real estate are beginning to fall.
| “Lenders don’t want to lend aggressively anymore because loan losses are rising.” |
Meanwhile, businesses don’t want to borrow aggressively because inventories are surging, sales are slumping and profits are hurting. And investors don’t want to gorge on more junk bonds or emerging-market debt or high-risk stocks because they’re nursing significant losses from past speculative bets.
Or to put it another way, neither central bankers nor fiscal policymakers can make the sun shine past sunset, or rise three hours earlier. They can’t keep the tide from coming in or going out. And they can’t make the global economy grow forever without a cleansing, recessionary down cycle … no matter how hard they try or how much they may want to.
The IMF’s latest downgrade only further confirms that view. So as an investor, you should ignore misleading comments and exhortations from politicians or policymakers. Instead, stay focused on the twists and turns in the credit and economic cycles – and how they can help you build wealth in a sustainable fashion. I will have lots more guidance on that topic in the days and weeks ahead, so stay tuned.
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Should you invest in currencies? Dividend paying stocks? And what is the outlook for the market and economy going forward? Those were just a few of the issues you discussed online in the last day.
Reader JP F. said: “I don’t play in the currency markets. I buy good dividend payers when they’re ‘on sale’ and utility sector ETFs when they’re ‘on sale.’
“My utilities hit new highs recently, so I sold most of the position. Materials are recovering quite well, so I may sell some there soon. Oil is up but, not near enough to get excited. Another day, another dollar made!”
Reader Al mentioned the benefits of buying stocks that pay reliable yields, saying: “Safe yield stocks with pristine balance sheets and expected continued growth are ideal investments until we see a sustained bull market. Currently stocks are behaving on such ridiculous news such as: ‘Under Armour took a hit because Jordan Spieth had a meltdown at the Masters.'”
Reader Hults warned against the risk of getting too negative, saying: “The doomsday sayers are buying the pessimistic guesses of a few negative traders. I’m tired of reading the guys or gals who say the end is coming so buy my advice and I’ll save you. This is all bull, and I’ll stay the course. Good dividend stocks with solid cash flow and good value (on the pullbacks).”
As for policy and the economy, Reader John P. said: “I needed to offer a quip about the meeting of the Fed chairmen. There was a reference to them ‘being at the helm of the world’s greatest economy. I offer the opinion that they are at the helm of the Death Star. Oy!”
Lastly, Reader Thomas C. said: “Real money represents actual work to obtain. It’s shorthand for the man-hours put into a given service or product. If both products and currency expand at the same rate, prices stay constant. If, on the other hand, production outpaces currency expansion, prices decline from which everyone benefits.
“Currency not backed by any goods soon will not be trusted. Hence America’s reduction in production, but increase in currency, means inflation is coming — or worse, no one will take the dollar in exchange for anything.”
[Read More – Yet ANOTHER Billionaire Warns About Coming Chaos – Mike Larson]
Thanks for sharing. Or if you haven’t done so yet, I encourage you to add your comments to the mix in the comment section.
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Yet another mega-bank is paying yet another mega-fine for yet another mega-scandal. This time it was Goldman Sachs (GS), the penalty was $5.1 billion, and the scandal was its processing and selling of mortgage-backed bonds during the housing crisis. But as with other banks, Goldman will likely get off with less financial pain than the headline figure suggests, according to this New York Times story. I’m sure you’re all shocked to hear that.
China’s construction of a “Great Wall of Sand” in the South China Sea is a fascinating, and potentially troubling, geopolitical coup for that country. The Wall Street Journal does a good job today of explaining what China has done, what it’s planning to do, and how its efforts make it very tough for the U.S. to respond effectively.
Brazil’s President Dilma Rousseff is increasingly at risk of impeachment, thanks to ongoing probes of administration corruption and protests in the Brazilian streets. In the country’s Congress, a committee has voted to proceed with impeaching La Presidente. But a key vote by the wider legislature this weekend will determine whether things get even more serious for the embattled leader.
You know that glut of high-end real estate construction? The increasing glut of apartments in many markets around the U.S. that I told you about months ago? Looks like the problems are getting worse.
One indicator: The developer of the luxury One57 tower in midtown Manhattan is giving up on a plan to lease 38 unsold units as apartments. It already failed in one effort to lease units on one floor last year, and it failed in another attempt to sell all 38 units in one bundle in the fall. Now it’s going to attempt to sell the units as condos that start at $3.45 million … undercutting prices of previously sold units.
Another bank, another multi-billion-dollar settlement? Shocking, I know. What do you think about Goldman’s deal with the government? How about the political crisis in Brazil? Also, do you think the problems we’re seeing in high-end real estate markets like New York City are going to spill over into more markets in the U.S.? What impact will that have on stocks? Share your thoughts in the comment section.
Until next time,
Mike Larson
Recommended Articles by Mike Larson:
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Hi Mike
Good dividend paying stocks in reliable sectors are the safest way to go outside of just holding cash. High yield stocks in near debt free companies with strong market shares have drawn me back in. This is a different kind of market which is managed until it collapses. My timing is getting better.
Goldman’s settlement is a joke compared to the billions upon billions lost by homeowners. It is small wonder that voters are standing up to the establishment in both parties. Social/political change is rapidly approaching.
peter
For this and many other reasons, change is essential. Washington doesn’t get it and neither do many of the highly prized daily papers either. What most people want is to be heard above the noise, to be given a fair go, a future for their families and to fix a broken system that should listen.
We elected a businessman as governor, last election, but he has to battle the professional politicians in the legislature and county/local governments. Politicians outnumber the people with practical knowledge of what makes things tick who are willing to run for office, and will keep going with their pet theories and giveaways until voters get some sense and toss them in the trash pile. Most voters though, only look at the “gimmies”.
“Lenders don’t want to lend aggressively anymore because loan losses are rising, borrower credit quality is starting to deteriorate, and collateral values in sectors like autos and commercial real estate are beginning to fall.”
Yes, and but even more, it is happening in the commercial area too. I have seen commercial real estate lenders, especially the banks, getting very tough. The companies I work with have gone from the banks to the insurance companies for loans. This is all a sign of deflation. No one wants to give up their cash unless the deal and the borrower’s credit are absolute sterling.
I just can’t feel sorry for developers, sellers, or buyers who deal is 3.45 million dollar condos or apartments. Boo-hoo!!!
Someday, maybe not in my lifetime, but someday the “have nots” are going to rise up and take what the “haves” have. Can you spell French Revolution? Can you spell Russian Revolution? History does and will repeat itself
ya, right … and wildebeest will realize they outnumber lions and will rise up.
Do you have any specifics on the auto industry? Inventories? Sales vs projected sales?
According to some articles I have read, this summer will be an excellent time to pick up a great deal on a new/used auto, in an industry that is seeing considerable slowdown.
I am in the market for a vehicle. And may get a good deal. But really would rather see the auto industry humming along at record pace. Autos and housing are canaries in the coal mine for American economic health.
Please check out yourcarinsiders.com, REGARDLESS where in the US you live and talk with Gary Greene. You will be doing yourself a big favor. He is a true consumer advocate!
Once again, no one goes to jail. Penalty is paid by peoples money and not personal money, so why should Goldman care. Besides, if you make more money than the fine imposed then you are still ahead of the game. Proper penalty should have been ALL the profits plus 5 B dollars. Second time around mandatory jail sentence of 5 years. This will stop Goldman from doing the same thing over and over again.
I’m not sure there were any profits hence the bailout to save them all. But, it’s got to be the actual personnel who pay the consequences and not the paper corporation. They want to make us mad at the welfare queen getting $300 month when this corporate welfare, tax loopholes, government grant gifts are what really matters numbers wise. But only few seem mad at the corporate chieftains who have raped the nation financially.
I’m a realtor in Southwest Florida. Yes, we have seen a dramatic decrease in interest in buying that 2nd, 3rd or 4th home. The upcoming election or should I say crap-shoot, S&P 500, now only breaking even for the year, as of today, & took a big hit in Feb., April being “Pay the Tax Man” and the aging of the Go-Go Boomers,who are finally figuring out they really don’t have enough saved to piss it away for 30 years, is coming to reality.
Time to batten down the hatches folks.
The global financial system is a man made system! Plants and animals continue to exist and grow even when money ceases to exist!!
Wouldn’t it be great if we could get rid of all of the politicians and bureaucrats and let the markets of free enterprise prevail? But then how would we deal with the unscrupulous individuals who are quite willing to rape and plunder the honest hard working people . Dilemma. Somewhere in there is a common sense balance of freedom and regulation . Utopia ?
We us as a country are going in the wrong direction everything right is wrong today… and everything wrong today is right today…I read this in the book of revelation called The Holy Bible…Maybe a few of us can still turn it around. After all every Dollar still has In God We Trust…Keep The Faith…
Analysts expect S&P earnings for the 1st quarter to be down almost 10%, yet averages are rising. Something is screwy somewhere. Companies are predicting lower business – lower earnings this year, but people are running their stocks higher, figuring a recovery in the 2nd half. When those lower earnings and profits and dividends hit, we could see a crash that would make 1929 seem like heaven.
I have spoken to many many people and I have met many individials, who work in many government correspondences, attributes. Being that I have been a victim to lots of injustment and my freedom has been tooken away in the past I was doing everything possible to not AGAIN fall again into a trap. I personally don’t think like a millionaire, I technically think the long run what will be the best for not just my Country but for the ENTIRE WORLD. At 17 is wen it started I pleaded guilty to something (I knew myself I was innocent too, I missed put in education) I have managed to disect how the system of the government goes I have been present and figured on my own throughout years reading books coinselinf , patients who receive medication for whatever aparent reasons. Well Im a big visionary with numbers and the environment that we live in let’s all Unite and make this world a better place