FedEx expects continued moderate economic growth, with trade flows staying volatile, executives told analysts in a conference call after the company reported results on Thursday.
FedEx, driven by online holiday orders, delivered about 17 million packages on Dec. 12 — twice the average daily shipments — in what was its busiest day in its 40-year history.
Today, American aggregate non-financial debt is at levels similar to those last seen in the midst of the Great Depression. At 250 per cent of GDP, that debt burden is equivalent to almost US$120,000 for every American (Chart 1).
…..backsliding on financial reform is not a solution to current problems. The challenge for the crisis economies is the paucity of credit demand rather than the scarcity of its supply. Relaxing prudential regulations would run the risk of maintaining dangerously high leverage – the situation that got us into this mess in the first place.
As a result of deleveraging, the global economy risks entering a prolonged period of deficient demand. If mishandled, it could lead to debt deflation and disorderly defaults, potentially triggering large transfers of wealth and social unrest.
Managing the deleveraging process
Austerity is a necessary condition for rebalancing, but it is seldom sufficient. There are really only three options to reduce debt: restructuring, inflation and growth. Whether we like it or not, debt restructuring may happen. If it is to be done, it is best done quickly. Policy-makers need to be careful about delaying the inevitable and merely funding the private exit.
……Some have suggested that higher inflation may be a way out from the burden of excessive debt. This is a siren call. Moving opportunistically to a higher inflation target would risk unmooring inflation expectations and destroying the hard-won gains of price stability.
…..With no easy way out, the basic challenge for central banks is to maintain price stability in order to help sustain nominal aggregate demand during the period of real adjustment. In the Bank’s view, that is best accomplished through a flexible inflation-targeting framework, applied symmetrically, to guard against both higher inflation and the possibility of deflation.
The most palatable strategy to reduce debt is to increase growth. In today’s reality, the hurdles are significant. Once leverage is high in one sector or region, it is very hard to reduce it without at least temporarily increasing it elsewhere.
In recent years, large fiscal expansions in the crisis economies have helped to sustain aggregate demand in the face of private deleveraging. However, the window for such Augustinian policy is rapidly closing. Few except the United States, by dint of its reserve currency status, can maintain it for much longer.
…..The route to restoring competitiveness [in the euro-zone] is through fiscal and structural reforms. These real adjustments are the responsibility of citizens, firms and governments within the affected countries, not central banks. A sustained process of relative wage adjustment will be necessary, implying large declines in living standards for a period in up to one-third of the euro area.
…..With deleveraging economies under pressure, global growth will require global rebalancing. Creditor nations, mainly emerging markets that have benefited from the debt-fuelled demand boom in advanced economies, must now pick up the baton. This will be hard to accomplish without co-operation. Major advanced economies with deficient demand cannot consolidate their fiscal positions and boost household savings without support from increased foreign demand. Meanwhile, emerging markets, seeing their growth decelerate because of sagging demand in advanced countries, are reluctant to abandon a strategy that has served them so well in the past, and are refusing to let their exchange rates materially adjust. Both sides are doubling down on losing strategies. As the Bank has outlined before, relative to a co-operative solution embodied in the G-20’s Action Plan, the foregone output could be enormous: lower world GDP by more than US$7 trillion within five years. Canada has a big stake in avoiding this outcome.
Mark Carney: Growth in the age of deleveraging.
Comment: ~ One of the most important papers I have read this year. Mark Carney, Governor of the Bank of Canada and Chairman of the Financial Stability Board — established by the G-20 in 2009 to further global economic governance — maps out the hard road to recovery from the current financial crisis.
The outlook for the global economy in 2012 is clear, but it isn’t pretty: recession in Europe, anemic growth at best in the United States, and a sharp slowdown in China and in most emerging-market economies.
……Adjustment of relative prices via currency movements is stalled, because surplus countries are resisting exchange-rate appreciation in favor of imposing recessionary deflation on deficit countries. The ensuing currency battles are being fought on several fronts: foreign-exchange intervention, quantitative easing, and capital controls on inflows. And, with global growth weakening further in 2012, those battles could escalate into trade wars.
via Fragile and Unbalanced in 2012 – Nouriel Roubini – Project Syndicate.
The euro broke through primary support at $1.32, warning of another primary decline with a target of $1.22*. Declining 63-day Twiggs Momentum indicates a strong primary down-trend.
* Target calculation: 1.32 – ( 1.42 – 1.32 ) = 1.22
Pound Sterling is testing primary support at $1.54, while 63-day Twiggs Momentum is below zero. Failure of support would signal a primary decline to $1.46.
* Target calculation: 1.54 – ( 1.62 – 1.54 ) = 1.46
The Aussie Dollar retreated below parity, indicating another test of medium term support at $0.97. Failure would test primary support at $0.94/$0.95. Respect of the zero line by 63-day Twiggs Momentum indicates a continuing primary down-trend. Weakening commodity prices, especially coal and iron ore, should strengthen the down-trend.
* Target calculation: 0.97 – ( 1.03 – 0.97 ) = 0.91
The Canadian Loonie is headed for a test of primary support at $0.94/$0.95. 63-Day Twiggs Momentum holding below zero suggests a continuing primary down-trend.
* Target calculation: 0.95 – ( 1.00 – 0.95 ) = 0.90
A monthly chart of the Greenback against the Yen shows strong bullish divergence on 63-day Twiggs Momentum, suggesting reversal of the primary down-trend. Breakout above ¥80 and the descending trendline would confirm the signal.
The US Dollar continues in a strong up-trend against both the South African Rand and Brazilian Real, helped by falling commodity prices. Breakout above R8.60 would signal a further advance to R9.20.
* Target calculation: 8.60 + ( 8.60 – 8.00 ) = 9.20
The cause of current anemic GDP growth is evident from the recently-released Z1 Flow of Funds report. GDP recovery from 2008/2009 is accompanied by only a modest rise in Domestic (Non-Financial) Debt — which is now constraining further growth.
Domestic (Non-Financial) Debt is made up of Government Debt and Private (Non-Financial) Debt — which can be further broken down into Household and Corporate debt. The Financial sector is excluded as it mainly acts as a conduit, channeling debt to other sectors of the economy. We can see below that Private (Non-Financial) Debt contraction was far greater than overall Domestic (Non-Financial) Debt. What saved the economy was a sharp spike in Government Debt in 2009, offsetting the fall. The massive fiscal deficit may have left a public debt hangover, but failure to offset the contraction in private borrowing would have had more serious consequences: a GDP collapse similar to the 1930s.
Resumption of corporate borrowing has dragged Private (Non-Financial) Debt growth into positive territory but growth remains anemic and households continue to de-leverage. Cessation of government borrowing would cause a fall in overall Domestic (Non-Financial) Debt growth to near zero and a sharp fall in GDP. The economy needs to be gradually weaned off stimulus spending in order to minimize disruption to growth. And not before Private sector borrowing recovers. We need a clear deficit-reduction plan, over 5 to 10 years, in order to restore corporate sector confidence and encourage new capital investment.
The only alternative is further quantitative easing (QE3), where continuous deficits are funded by borrowing from the Fed. But that poses a whole new set of problems — and could lead us back to square #1.
Dow Jones Industrial Average reversed below short-term support at 12000. Bearish divergence on 21-day Twiggs Money Flow warns of medium-term selling pressure — and a correction to test primary support at 10600. Reversal (of TMF) below zero and follow-through (of DJIA) below 11900 would strengthen the signal.
Respect of the descending trendline on Canada’s TSX 60 weekly chart indicates another test of primary support at 645. Failure would signal a primary decline to 575*. Breach of the zero line by 63-day Twiggs Money Flow would warn of rising selling pressure. Breakout above resistance at 715 is unlikely but would flag that the primary down-trend has ended.
* Target calculation: 645 – ( 715 – 645 ) = 575
Dow Jones Industrial Average is testing resistance at 12300. Breakout would signal a primary advance to 13400 and an end to the bear market. Rising 63-day Twiggs Momentum is encouraging but will only be significant if retracement respects the zero line.
* Target calculation: 12300 + ( 12300 – 11200 ) = 13400
The Nasdaq 100, however, displays a large bearish divergence on 13-week Twiggs Money Flow, warning of selling pressure. Reversal below 2040 would confirm a primary down-trend. Breakout above 2400 is less likely, but would suggest an advance to 2800*.
* Target calculation: 2400 + ( 2400 – 2000 ) = 2800
The S&P 500 index recovered above medium-term support at 1220/1250, with a short surge in buying pressure, but the situation remains precarious. Breakout above 1300 would indicate that the threat of another bear market has passed, but reversal below 1160 remains as likely — and would warn of another test of primary support at 1100/1080.
The situation is similar to the attempted recovery above 1400 [now here] in 2008. Reversal below medium-term support [1400] in that case tipped us into a bear market.
Investors have now pulled more than $130 billion out of mutual funds that invest long term in United States stocks, since May 1.
…..In the six months ending October 31, $114.8 billion already had been pulled out of U.S. stock funds. The peak was in August, when Standard & Poor’s downgraded the rating of U.S. government debt. That month $26.3 billion was pulled out. But the pullout has stayed above $14 billion every month since.
