{"id":14769,"date":"2017-02-06T22:58:23","date_gmt":"2017-02-07T03:58:23","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=14769"},"modified":"2017-02-06T22:58:23","modified_gmt":"2017-02-07T03:58:23","slug":"a-bump-for-donald-trump-next-year","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2017\/02\/06\/a-bump-for-donald-trump-next-year\/","title":{"rendered":"A bump for Donald Trump next year"},"content":{"rendered":"

From Tim Wallace at The Age<\/em>:<\/p>\n

Nine years on from the start of the financial crisis, the US recovery may be overheating, Legal & General Investment Management economist James Carrick has warned.<\/p>\n

He has predicted a series of interest rate hikes will tip the US into a 2018 recession.”Every recession in the US has been caused by a tightening of credit conditions,” he said, noting inflation is on the rise and the US Federal Reserve is discussing plans for higher interest rates.<\/p>\n

Officials at the Fed have only raised interest rates cautiously, because inflation has not taken off, so they do not believe the Fed needs to take the heat out of the economy.<\/p>\n

But economists fear the strong dollar and low global commodity prices have restricted inflation and disguised domestic price rises. Underneath this, they fear the economy is already overheating.<\/p>\n

As a result, they expect inflation to pick up sharply this year, forcing more rapid interest rate hikes.<\/p>\n

That could cause a recession next year, they say. In their models, the signals are that this could take place in mid-2018.<\/p><\/blockquote>\n

I agree that most recessions are caused by tighter monetary policy from the Fed but the mid-2018 timing will depend on hourly earnings rates.<\/p>\n

Hourly earnings are a good indicator of underlying inflationary pressure and a sharp rise is likely to attract a response from the Fed. The chart below shows how the Fed slams on the brakes whenever average hourly earning rates grow above 3.0 percent. Each surge in hourly earnings is matched by a dip in the currency growth rate as the Fed tightens the supply of money to slow the economy and reduce inflationary pressure.<\/p>\n

\"Hourly<\/p>\n

Two anomalies on the above chart warrant explanation. First, is the sharp upward spike in currency growth in 1999\/2000 when the Fed reacted to the LTCM crisis<\/a> with monetary stimulus despite high inflationary pressures. Second, is the sharp dip in 2010 when the Fed took its foot off the gas pedal too soon after the financial crisis of 2008\/2009, mistaking it for a regular recession.<\/p><\/blockquote>\n

Hourly earnings growth has risen to 2.5 percent but the Fed is only likely to react with tighter monetary policy when earnings growth reaches 3.0 percent. Recent rate rises are more about normalizing interest rates and are no cause for alarm.<\/p>\n

I am more concerned about the impact that rising employment costs will have on corporate earnings.<\/p>\n

The chart below is one of my favorites and shows the relationship between employee compensation and corporate profits (after tax) as a percentage of net value added. Profit margins rise when employment costs fall, and fall when employment costs rise.<\/p>\n

\"Profits<\/p>\n

Employee compensation is clearly rising and corporate profits falling as a percentage of net value added. If this trend continues in 2017 (last available data is Q3 2016) then corporate earnings are likely to come under pressure and stock prices fall.<\/p>\n

Source: Warning of bump for Donald Trump next year with slide into recession<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

From Tim Wallace at The Age: Nine years on from the start of the financial crisis, the US recovery may be overheating, Legal & General Investment Management economist James Carrick has warned. He has predicted a series of interest rate hikes will tip the US into a 2018 recession.”Every recession in the US has been … <\/p>\n

Continue reading “A bump for Donald Trump next year”<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[31,57,34],"tags":[831,917,1224,1228,1718,2442,2789],"class_list":["post-14769","post","type-post","status-publish","format-standard","hentry","category-the-fed-banks-interest-rates","category-stock-markets","category-us-canada-countries-regions","tag-corporate-profits","tag-currency-in-circulation","tag-employee-compensation","tag-employment-costs","tag-hourly-earnings-growth","tag-net-value-added","tag-profit-margins"],"yoast_head":"\nA bump for Donald Trump next year - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"A bump for Donald Trump next year - the patient investor\" \/>\n<meta property=\"og:description\" content=\"From Tim Wallace at The Age: Nine years on from the start of the financial crisis, the US recovery may be overheating, Legal & General Investment Management economist James Carrick has warned. 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I would love to stay out of politics. Frankly, I find it tiresome. Unfortunately, politics and the economy are so intertwined as to make the study of one meaningless without consideration\u2026","rel":"","context":"In "Inflation"","block_context":{"text":"Inflation","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/inflation-economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":36415,"url":"https:\/\/thepatientinvestor.com\/index.php\/2022\/08\/15\/why-we-hold-gold\/","url_meta":{"origin":14769,"position":2},"title":"Why we hold Gold","author":"Colin Twiggs","date":"August 15, 2022","format":false,"excerpt":"Here is a quick summary of our outlook on Gold, inflation and the Dollar, prepared in answer to a question from a client. Interest Rates The yield curve has flattened, indicating bond market expectations that the Fed will be forced to stop hiking rates soon. We are not so sure.\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Yield Curve","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-08-12-yieldcurve.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-08-12-yieldcurve.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-08-12-yieldcurve.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":31607,"url":"https:\/\/thepatientinvestor.com\/index.php\/2022\/03\/22\/yield-curve-gymnastics\/","url_meta":{"origin":14769,"position":3},"title":"The yield curve recession warning","author":"Colin Twiggs","date":"March 22, 2022","format":false,"excerpt":"A great deal has been written in the past month above the flat 10-year\/2-year Treasury yield curve and the inevitability of recession if the slope turns negative. Wolf Richter sums up the problem: The weight of the Fed\u2019s gargantuan balance sheet is pushing down on long-term yields that the Fed\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"US Treasury Yield Curve","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/us-yield-curve-2022-03-21.png?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]},{"id":16023,"url":"https:\/\/thepatientinvestor.com\/index.php\/2017\/10\/23\/fed-flunks-econ-101\/","url_meta":{"origin":14769,"position":4},"title":"Fed flunks econ 101?","author":"Colin Twiggs","date":"October 23, 2017","format":false,"excerpt":"Caroline Baum's opinion on the Fed's approach to inflation: For all the sturm und drang about the Fed debasing the dollar and sowing the seeds of the next great inflation, the public\u2019s demand for money has increased. The increased desire to hold cash and checkable deposits has risen to meet\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":30428,"url":"https:\/\/thepatientinvestor.com\/index.php\/2022\/01\/15\/the-feds-dilemma\/","url_meta":{"origin":14769,"position":5},"title":"The Fed’s dilemma","author":"Colin Twiggs","date":"January 15, 2022","format":false,"excerpt":"Charles Schwab's latest report highlights the Fed's dilemma: How to curb inflation without slowing the economy and causing a recession? While markets had already priced in three rate hikes this year, the prospect of quantitative tightening in 2022 was a surprise because it\u2019s a departure from the Fed\u2019s approach in\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Yield Curve: 10-Year minus 2-Year","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-01-14-yieldcurve.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-01-14-yieldcurve.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-01-14-yieldcurve.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/14769","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=14769"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/14769\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=14769"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=14769"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=14769"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}