Dave Rosenberg: What to Expect From This Market
From Dave Rosenberg:
If (the banks) are lending to anyone, it is to Uncle Sam — the banks continue to play the yield curve, belatedly, and were net buyers of government securities to the tune of $15 billion last week on top of the $8 billion net investment the week before. Moreover, the banks are sitting on even more cash, up $35 billion last week, to $1.3 trillion, so there is lots of buying power to take these long-term Treasury yields even lower.
Despite the most aggressive government efforts in the modern era to kick-start the economic cycle, what we still have on our hands is a broken financial system.
What few people realize is that 100% of the increase in GDP during that wonderful, though obviously artificial, economic recovery coming out of the tech wreck from 2002 to 2007 was funded by the explosion in the securitized credit market. This market is now, for all intents and purposes, defunct and replaced by Uncle Sam’s family (Fannie, Freddie, Sallie … and the FHA too).
The government is there to help counteract these deflationary excessive savings trends in the private sector, but the problem now is one of high and rising structural deficits and a debt-to-GDP ratio that is a year away from breaking above 90%.
.....what you pay for by putting an artificial floor under the “levels” of output, spending, credit etc, is that it becomes difficult to achieve any meaningful “growth rates”.
...the U.S. post-bubble transition will not last 20 years as has been the case in Japan, but another five years of painful transition and shared sacrifice and the deflation that goes along with them are probably baked in the cake, and this means even lower long-term bond yields.
If (the banks) are lending to anyone, it is to Uncle Sam — the banks continue to play the yield curve, belatedly, and were net buyers of government securities to the tune of $15 billion last week on top of the $8 billion net investment the week before. Moreover, the banks are sitting on even more cash, up $35 billion last week, to $1.3 trillion, so there is lots of buying power to take these long-term Treasury yields even lower.
Despite the most aggressive government efforts in the modern era to kick-start the economic cycle, what we still have on our hands is a broken financial system.
What few people realize is that 100% of the increase in GDP during that wonderful, though obviously artificial, economic recovery coming out of the tech wreck from 2002 to 2007 was funded by the explosion in the securitized credit market. This market is now, for all intents and purposes, defunct and replaced by Uncle Sam’s family (Fannie, Freddie, Sallie … and the FHA too).
The government is there to help counteract these deflationary excessive savings trends in the private sector, but the problem now is one of high and rising structural deficits and a debt-to-GDP ratio that is a year away from breaking above 90%.
.....what you pay for by putting an artificial floor under the “levels” of output, spending, credit etc, is that it becomes difficult to achieve any meaningful “growth rates”.
...the U.S. post-bubble transition will not last 20 years as has been the case in Japan, but another five years of painful transition and shared sacrifice and the deflation that goes along with them are probably baked in the cake, and this means even lower long-term bond yields.
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