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The American economy should be in a strong recovery. But that won’t happen. It’s held hostage by an out-of-control bunch of crybabies and clowns, dogmatic no-compromise ideologues who see government as an enemy and welcome an opportunity to shut it down. That’s even though most experts warn that failure to resolve the three upcoming cliffs guarantees serious adverse consequences — lower GDP growth, a recession, another credit rating crash and a loss of international credibility.
It really is easy to see why famed economist Gary Shilling is warning of a 42% market collapse. With hundreds of crybabies running Washington, our economy will just sink deeper in 2013.
Shilling concludes with this dark summary of the coming crash: “With a global recession depressing corporate revenues, unsustainable profit margins and currency translation losses spawned by a robust dollar, I see S&P 500 operating earnings of $80 per share next year. That’s a quarter below Wall Street consensus. Throw in a bear market P/E low of 10 and the S&P 500 Index drops to 800, a 42% decline.”
Yes, Shilling does not see any reason for optimism now. But he does have a great track record as a forecaster. So believe him when he says: “Beyond the fiscal cliff, the economic outlook for 2013 is negative. Most forecasters are paid to be bullish. I try to be realistic,” says Shilling.
Shilling is actually confirming earlier comments in “U.S. GDP on road to zero growth by 2050,” where Jeremy Grantham, whose GMO firm manages $100 billion, says: “The U.S. GDP growth rate that we have become accustomed to for over a hundred years … is gone forever.” And it will decline further: “Going forward, GDP growth … for the U.S. is likely to be about only 1.4% a year, and adjusted growth about 0.9%.”
Shilling’s sees “big trouble dead ahead.” Yes, “big,” and, yes, “dead ahead.” He sees nine major reasons that explain why the future of both the U.S. and global economies and markets are “so grim.”
Here are the crucial nine macro trends, all made worse by America’s dysfunctional government, which won’t correct itself for several years:
1. Lower consumer spending
“U.S. consumers are making a U–turn from borrowing and spending to saving. … That’s bad news for U.S. retailers, and worse news for foreign countries that rely on exports.”
2. Financial deleveraging
Wall Street pushed America into a downhill spiral in 2008, and it’s “still rippling through the global system — consumers and businesses are focused on capital preservation above all.” Shilling sees a grim future: “Say goodbye to expansion and growth; forget about a bull market in stocks.”
3. Limiting new regulations
Across the world “governments of developed economies are piling on new regulations with abandon. That’s great if you want to encourage corruption, but lousy if you want more innovation and efficiency.”
4. Commodity prices dropping
Worse, prices will “keep falling as global growth slows,” warns Shilling. “Expect major turmoil and possibly revolution in countries that rely on exporting commodities like grains, metals or oil.”
5. Government spending cutbacks
“Governments in developed countries are forced into austerity and fiscal restraint. That’s bad news for national GDP in Europe, America, Asia, and a disaster for citizens that rely on a safety net in those countries.” Translation: The GOP’s demand for spending cuts, in Social Security and other social programs, may happen naturally thanks to these nine slow-growth macroeconomic trends, without any government shutdown.
6. Protectionism hurts trade and growth
Shilling asks: Does protectionism “help global trade and growth? It doesn’t.”
7. Excess inventories limit investing
The housing market especially “still suffers under excess inventories and has absolutely no appeal for investors. That’s not just bad for employment,” warns Shilling. “It’s downright depressing for homeowners who feel a negative wealth effect.”
8. Deflation dampens growth
Deflation makes buyers everywhere cautious as they wait for lower prices. You want to think twice before you own or invest in any industry that relies on consumer spending.
9. State, local, national, world government problems
And yes, they are in deep trouble. Less money from Washington. Plus revenues dropping, running short of cash, and facing bankruptcies: “Is your community prepared to cope with half as many cops, firefighters and teachers?” No.
Yes, big, big trouble lies dead ahead, at all levels of government — city, state, national and throughout the world, creating a hotbed for more wars and revolutions.
Shilling’s Insight Newsletter is one of the finest economic forecasting letters available. The latest warns against the blind “fixation of investors on monetary easing to the exclusion of weak real economic activity. This ‘grand disconnect’ between robust security markets and subdued at best economic reality, combined with central-bank-set low interest rates, has spawned many distortions and a zeal for yield that almost completely ignores financial risks.”
But this “grand disconnect is unsustainable. Unless the global economy leaps to meet investor expectations, disappointments will follow and … a substantial shock will precipitate this shift and a global recession.”
Get it, folks? “Big trouble is dead ahead,” a recession, a 42% crash, with crybabies and clowns screwing up our government.
[from MarketWatch, by Paul B. Farrell]
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NORM ‘n’ AL, Minneapolis