Reading Assignments:

The stock market correction has arrived: Massive global volatility, central bank wizardry, geo-political instability, and people finally realizing how overvalued the market has become.

The stock market is hitting the correction button 

First, much of the selling is being done by big funds triggered by technical trading. Over 80 percent of stock wealth is held in the hands of the top 10 percent. The public is simply a spectator to the stock market. So this correction is happening at higher levels. The public doesn’t need some Wall Street financier telling them that the middle class is shrinking. They are living this on a daily basis. 

The S&P 500 is overvalued. We knew this. So it is no surprise that the S&P 500 has given up the gains of 2014 within a couple of weeks.

Fed opens new era with end of QE stimulus program

Washington (AFP) - The Federal Reserve decided Wednesday to end its quantitative easing stimulus program, after six years of pumping easy money into the US economy via asset purchases to shore up growth. 

It said the market, after several months of solid job creation, has shown "substantial improvement", and that labor market slack -- an issue that has clearly bothered Fed Chair Janet Yellen since the beginning of the year -- was diminishing.

Skittsh markets push Fed to continue QE

As volatility soared during the selloff, many investors saw it as Wall Street once again sending a message to DC: We need help or we can go belly-up before the midterm elections. 

The market reaction, some contend, prompted St. Louis Federal Reserve Bank President James Bullard to call for a pullback on the taper.

The American Dream Goes Bust: Home Ownership Rate Back To 1994 Levels

Since the Fed has done its handiwork, institutional investors have driven up home prices and pushed them out of reach for many first-time buyers, and these potential first-time buyers are now renting homes from investors instead. Given the high home prices, in many cases it may be a better deal. And apartments are often centrally located, rather than in some distant suburb, cutting transportation time and expenses, and allowing people to live where the urban excitement is. Millennials have figured it out too, as America is gradually converting to a country of renters.

Despite low and skidding homeownership rates, home prices have been skyrocketing in recent years, and new home prices have reached ever more unaffordable all-time highs. Housing Bubble 2 came into full bloom, but now it too popped. Mess ensues. Read… New Home Prices Plunge the Worst EVER (in One Ugly Chart)

New Home Prices Plunge the Worst EVER (in One Ugly Chart)

So that’s sort of what should have happened this September … some kind of uptick. Even a small one would have done. But no. The median price plummeted 9.4% from August. A one-month trip from $286,000 to $259,000. It crashed $27,000 in one fell swoop. 

Here is what that plunge looks like (courtesy of the St. Louis Fed). I called it “one heck of an ugly dude” for a reason:

America’s ugly economic truth: Why austerity is generating another slowdown

The global economy is ailing, and the damage done by fiscal policy is going to come crashing. Here's our sad fate

Markets have unquestionably slumped: the S&P 500 is down 8 percent just since mid-September. More important, interest rates have plummeted. Geopolitical tensions, from ISIS to the Ebola outbreak in West Africa, shoulder part of the blame. But markets also fear low inflation, partly due to crashing commodity prices. 

Increased supply tells part of this tale, from a bumper crop in corn and soybeans to higher U.S. shale oil production (thanks to fracking and other extraction tools). There’s even reason to believe that Saudi Arabia has refused to turn off the oil spigot to support prices because it wants to put U.S. production out of business by making it less profitable. And keep in mind that a significant amount of this worry from well-off investors has to do with the fact that ordinary people will pay less for gas and food. In fact, that aspect is likely to boost the economy, at least in the near term (although damage to the domestic energy sector could wipe this out).

Low Oil Prices Means High Anxiety for OPEC as U.S. Flexes its Muscle 

While pension holders and investors watched aghast as billions of pounds were lost to market gyrations, a fossil-fuel glut and a slowing global economy have driven the oil price down to a level that could save the world $1.8bn a day on fuel costs. If this is some consolation for households everywhere after last week’s hit on stock market wealth, it means pain for the Opec cartel, composed mainly of Middle East producers. 

Opec’s 12-member group has largely controlled the global price of crude oil for the past 40 years, but the US’s discovery of shale oil and gas has dramatically shifted the balance of power, to the apparent benefit of consumers and the discomfort of petrostates from Venezuela to Russia.

Retirement age to rise by as much as six months per year

The pensions minister, Steve Webb, says Britons must accept dramatically longer working lives to avoid a health care funding crisis

Ministers believe that the retirement age needs to increase dramatically to reflect Britain’s ageing population and to avoid a health care crisis. 

The average age of retirement is 64.7 for men and 63.1 for women. The Department for Work and Pensions said in its business plan that it would like the average to rise by as much as six months every year.

DYI Comment:  Excellent article.  This is coming to America.

DYI 

Disclaimer

Savings Week has Very Little to Offer

This week is National Save for Retirement Week and, lo and behold, it just got a little harder to do just that. 

The national average of interest on savings accounts is a pathetic 0.08 percent rate, according to Bankrate.com. That rate amounts to essentially nothing before or after bank fees. 

How could it be that after five years of exceptional accommodation from the Federal Reserve, responsible savers are still getting screwed?

DYI Comment:   Simple...The major central banks of the world have committed themselves to financial repression.

1. Financial repression is a term used to describe measures sometimes used by governments to boost their coffers and/or reduce debt. These measures include the deliberate attempt to hold down interest rates to below inflation, representing a tax on savers and a transfer of benefits from lenders to borrowers.

   Since 2008, Americans who have worked hard and put money aside for a rainy day or retirement have been punished. 

   But now they should become downright disenfranchised, and with good reason.

   DYI Continues: Disenfranchised....Absolutely especially those who purchase CD's (time deposits) at their local bank.  Here is an example from a well known credit union (rates subject to change without notice, example only).
2. 
   
3. Pentagon Federal Credit Union  

4. Term	Dividend Rate	APY
   6 Month	0.300%	0.30%**
   1-Year	1.200%	1.21%
   2-Year	1.300%	1.31%
   3-Year	1.350%	1.36%
   4-Year	1.400%	1.41%
   5-Year	2.100%	2.12%
   7-Year	2.300%	2.32%

5.    

DYI....The Fed's sub atomic low interest rates have not only killed off the saver but for those who have thrown in the towel with basic savings and have joined the yield seeking stock market crowd will be in for a rude awaking when this over valued, over bullish market heads south.  Those knowing this are speculating in hope of getting out before too much damage is done to their returns. Those UNKNOWINGLY (God help them) who are forced to seek higher yields will feel totally screwed when the losses pile up wiping out years of interest or dividend payments due to a decline in principal.

Estimated 10yr return on Stocks

Using 5.4% as the historical growth rate of dividends and 4.0% as the ending yield.

Starting Yield*---------return**
1.0%-----------------------(-5.7%)
1.5%-----------------------(-1.7%) 

2.0%------------------------1.3%  You are Here!

2.5%------------------------3.8%

3.0%------------------------5.9%
3.5%------------------------7.8%
4.0%------------------------9.4%
4.5%-----------------------10.9%

5.0%-----------------------12.3%
5.5%-----------------------13.6%
6.0%-----------------------14.8%
6.5%-----------------------15.9%

7.0%-----------------------17.0%
7.5%-----------------------18.0%
8.0%-----------------------19.0%

*Starting dividend yield of the S&P500-**10yr estimated average annual rate of return.

DYI's estimated return is for monies invested today (S&P 500 index fund, a lessor return for a managed fund) go to sleep like Rip Van Winkle, wake up 10 years later your return will be close to that estimate.  Of course if you are awake during those 10 years you are in for one heck of a roller coaster ride.  Definitely one bear market and a lessor chance of a second draw down within that 10 year window of time is historically correct especially when starting out at high valuations.

The Fed’s own forecast says that a 4 percent Fed funds rate, which is the long-term average, won’t arrive until 2022. Bernanke believes it will be even longer than that. 

So, don’t expect your bank to offer you any more than a mere pittance for your savings deposits anytime soon, even if it is National Save for Retirement Week.

DYI.....Unfortunately financial repression will be with us during the 2020's as costs for Social Security and Medicare ramp up as Boomer's retire in mass pushing the Fed's to monetize(money printing) a portion of those costs.  The 2020's will be be known as the roaring 20's as unemployment recedes to a labor shortage due to the Boomer's exiting the work force but still consuming albeit at a lesser rate.  Look for taxes to increase across the board as well with a the possibility of a consumption tax to pay the Fed's bills and to dampen inflation.

Currently today disinflation/deflation reigns supreme for at least the next 3 to 5 years and continued sub atomic low interest rates hammering the basic saver retiree into more frequent draw downs of principal to maintain a middle class lifestyle.

DYI's two portfolio's remain the same in a very defensive posture with a high level of cash. This over blown, over valued, and over speculated market will end in trail of tears, only when is the big question; especially with a central bank determined to levitate stock and bond prices.  In the end value will win out with lower prices as the market regress' back to the mean.

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 09/1/14

Active Allocation Bands (excluding cash) 0% to 60%

78% - Cash -Short Term Bond Index - VBIRX

15% -Gold- Precious Metals & Mining - VGPMX

 7% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX
 0%-REIT's- REIT Index Fund - VGSLX

[See Disclaimer]

                                       10-1-14

Maximum Aggressive Portfolio

                                (Super Max)

68% Cash - Hussman Strategic Total Return Fund - HSTRX

15% Gold - Tocqueville Gold Fund - TGDLX

  7% Lt. Bonds - Zero Coupon 2025 Fund - BTTRX

10% Stocks - Federated Prudent Bear Fund - BEARX

  0% REIT'S - REIT Index Fund - VGSLX

Disclaimer

This blog site is not a registered financial advisor, broker or securities dealer and The Dividend Yield Investor is not responsible for what you do with your money.

This site strives for the highest standards of accuracy; however ERRORS AND OMISSIONS ARE ACCEPTED!

The Dividend Yield Investor is a blog site for entertainment and educational purposes ONLY.

The Dividend Yield Investor shall not be held liable for any loss and/or damages from the information herein.

Use this site at your own risk.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

TILL NEXT TIME....

DYI

The Odd Existence of Point Roberts, Washington

Life in a piece of America tacked on the tip of Canada. 

The town sits about 20 miles directly south of Vancouver, on a little peninsular tip of land, jutting just below the 49th parallel. That's the line, as you probably know, that generally demarcates the separation between Canada and the United States, at least from the middle of Minnesota westward. This borderline cuts between Blaine, Washington, and White Rock, British Columbia, the two counterpoint cities of this west coast end of the U.S.-Canada border. But through the waters of Boundary Bay, the line keeps heading west, true along the 49th and directly through the peninsula at this tip of British Columbia. To the south of the line sits Point Roberts, a 5-square mile fingernail of B.C. that is actually part of the United States. 

Resident Kathryn Booth says the border tends to dominate outsiders’ perception of the town. As the operator of pointrobertstourism.com, she’s the self-appointed public relations face of Point Roberts, and she’s heard her share of incredulous visitors since moving here in 2009. “They’ll say ’Oh my god, how do people live here? It’s like a police state.’ And in some ways it kind of feels that way.” 

“On the one hand, it’s been rated the safest community because it’s like having a really, really, really strict security guard gate,” Booth says. 

Point Roberts is also a good place to get away – or to hide out. Thanks to Canada’s fairly strict border crossing rules, it’s difficult for people with criminal records to cross over, so even ex-felons who can move freely about in the U.S. wouldn’t easily be able to find their way into Point Roberts. This is part of the reason the town is, unofficially, home to about 50 people in the U.S. Marshals Service’s Witness Security Program, or Witness Protection. Other residents have come here seeking their own protection.

DYI Comment:  This is on my bucket list of places to go and see.

DYI

Time to buy? The FTSE 100 in four key graphs

The yield on blue-chip shares has been as low as 2pc and as high as 5.5pc since 1999. Our graphs show the key trends

DYI Comment:  The U.K. FTSE 100 dividend yield is almost 100% greater than the U.S. market pushing out their 10 year annualized estimated return close to 9%.  This compares to a scant 2% estimated annualized return here at home.  Of course there is the other variable of currency exchange between the Pound and Dollar changing your return depending on the strength of the U.S. currency.

He added: "The dividend yield tells you a bit more. The yield will tend to be high when prices are low and vice versa. The measure is often used in conjunction with the yield on government bonds or gilts to assess the relative attractiveness of bonds and shares. 

"Before 'QE' it was natural to expect shares to yield less than gilts because they also carry the potential for dividend growth and capital growth over the long term. Not so any more – UK shares yield around 3.5pc and the 10-year gilt just 2.2pc, thanks to the Bank of England. The drawback of looking at the dividend yield is that it is backward-looking in that it involves last year’s dividends."

"The Cape is like the p/e except that, rather than looking at last year’s earnings, it looks at the last 10 years of earnings," Mr Khalaf said. "The idea is that you are levelling out the ups and downs that company profits experience by looking at 10 years of data. On this measure the UK market is pretty cheap by historical standards."

DYI

 

Blodget: Stocks still 30 - 40% overvalued

The chart shows what most students of market history quickly learn: Stocks move in distinct "bull" and "bear" phases that often last for decades:

The big argument among market pundits these days is whether the market is still in the middle of the "bear" phase that began in 2000 (14 years and counting) ... or in the middle of a new "bull" phase that started at the financial-crisis low in 2009 (five years and counting).
The bulls look at the chart above and point out that we moved sideways for 10 years after 2000, say that was plenty, and predict that stocks will now obviously forge ever higher for years as the new bull market continues:
Bears, meanwhile, look at the chart and see a temporary, Fed-fueled spike in the middle of a long bear market that they believe will see at least one more big downtrend and correction (likely lasting years) before it is done:

Throughout history, stock prices have loosely gravitated around the "fundamentals" of the underlying companies — namely, earnings. Specifically, stocks have traded in a range of 5X cyclically adjusted earnings (at bear-market lows) to 44X earnings (at the peak of the biggest bull market in history — the one that ended in 2000). The "average" P/E ratio over this period, meanwhile, has been about 15X.When you add P/E ratios to the charts above, you quickly notice a pattern:Sustained bear-market periods have begun when the P/E is very high (~25X+).Sustained bull-market periods, meanwhile, have begun when the P/E is very low (5X to 9X).In other words, sustained bull markets begin when investors are so disgusted by stocks — and so pessimistic about the future of stocks — that they'll pay only 5X to 9X earnings for them. And sustained bear markets begin when investors are so giddy with excitement about stocks and the prospects for stocks that they'll happily pay 25X earnings or more for them.But we can make a couple of observations:

• First, the P/E ratio at the recent peak was higher than the P/E ratio at any time in the past 115 years, with the brief (and very temporary) exceptions of the two great market peaks of 1929 and 2000. For the "new bull market" to continue indefinitely, therefore, the market's P/E would have to continue to keep rising toward the P/E at the historic 2000 market peak — which, it is worth noting, was followed by a devastating crash.

• Second, if we are indeed in the middle of a new bull market, the bear-market "workout period" following the 2000 peak lasted only nine years. That's considerably shorter than the three other big workout periods in the 20th Century: The 19-year workout from 1901 to 1920, the 19-year workout from 1929 to 1948, and the 18-year workout from 1966 to 1982. 

Unless something has changed that makes the past 115 years of market history irrelevant (always possible, but probably not likely), it would not be surprising if the biggest bull-market peak in market history was followed by one of the biggest bear-market workouts in history — one that, perhaps, might last as long or longer than any major workout period to date.

*************************************************

On the Tendency of Large Market Losses to Occur in Succession 

John P. Hussman, Ph.D.

Our most important lessons in the half-cycle since 2009 are not that overvaluation and overextended syndromes can be safely ignored. Historically, we know that these conditions are associated with disappointing subsequent market returns, on average, across history. Rather, the most important lessons center on the criteria that distinguish when these concerns may be temporarily ignored by investors from points when they matter with a vengeance. In other words, our lessons center on criteria that partition a bucket of historical conditions that are negative on average into two parts: one subset that is fairly inoffensive, and another subset that is downright brutal. Central to those criteria are factors such as deterioration in the uniformity of market internals, widening credit spreads, and other measures of growing risk aversion. Once that shift occurs, market declines often bear little proportion to whatever news item investors might latch onto in order to explain the losses.

In short, recent weeks have seen a strenuously overbought record high in the S&P 500 featuring the most lopsided bullish sentiment (Investor’s Intelligence) since 1987, coupled with increasing divergence and deterioration across a wide range of market internals, including small-capitalization stocks, junk debt, market breadth, and other measures. With compressed risk premiums now joined by indications of increasing risk aversion, we remain concerned that risk premiums will normalize not gradually but in spikes, as is their historical tendency.

 ***************************************************

This Time Is Different—–For The First Time In 25-Years The Wall Street Gamblers Are Home Alone

The last time the stock market reached a fevered peak and began to wobble unexpectedly was August 2007. The proximate catalyst back then was the sudden recognition that the subprime mortgage problem was not contained at all, as Bernanke had proclaimed six months earlier. The evidence was the surprise announcement by the monster of the mortgage midway—–Countrywide Financial—-that it would be taking huge write-downs on its $200 billion balance sheet.

So here we are once again, and it is once again claimed that this time is different. The 65 month rise of the S&P 500 bears all the hallmarks of a central bank fueled casino—- even more completely than the 2003-2007 run. Also once again, the market is said to be “attractively valued” and that next years earnings(ex-items) at $125 per share represent only a 15X PE multiple. So after the “healthy correction” of the past week or so, it is purportedly time once again to buy the dip.

Except this time is indeed different, but not in a good way. When Bernanke & Co. stalled off the August 2007 correction for nearly a year, they still had plenty of dry powder. The federal funds rate was 5.25% and the Fed’s balance sheet was only $850 billion. 

But now, however, we are on the far side of the great monetary experiment known as ZIRP and QE. The money market rate is at the zero bound and has been pinned there for 69 months running—a stretch never before experienced even during the Great Depression. Likewise, the Fed’s balance sheet has grown by 5X to nearly $4.5 trillion—again a previously unimaginable eruption.

But what is profoundly different this time is that the Fed is out of dry powder. Its can’t slash the discount rate as Bernanke did in August 2007 or continuously reduce it federal funds target on a trip from 6% all the way down to zero. Nor can it resort to massive balance sheet expansion. That card has been played and a replay would only spook the market even more.

So this time is different.  The gamblers are scampering around the casino fixing to buy the dip as soon as white smoke wafts from the Eccles Building.  But none is coming. For the first time in 25- years, the Wall Street gamblers are home alone.

**************************************************** 

Global Alert From Chongqing: Foxconn Strike Is An Epochal Inflection Point

Foxconn workers are striking again—this time in Chongqing. But you have to look at the map to see why this is an event of extraordinary significance. In a word, these strikes mean that the rice paddies of China have been nearly drained of cheap, docile labor.

 

So the strikes in Chongqing are of global and potentially epochal significance. It was the two-decades-long flow of quasi-slave labor into the export factories of east China that enabled the major global central banks to go on a money printing rampage like the world has never before seen. The latter was conducted with apparent impunity because during that same period the induction of several hundred million peasants into the world’s factory system caused worldwide prices of consumer goods to fall, even as the money printers were enabling an orgy of credit-fueled spending by American and European households. 

Yes, there is an extensive geography west of Chongqing, but here’s what it mostly consists of: mountains, as in the massive Plateau of Tibet; arid lands, culminating in the forbidding expanse of the Gobi Desert; and the factory-less rain forests of southwest China.

In short, there are few rice paddies west of Chongqing to drain because no one lives there. And this means the closing of the world’s cheap labor frontier is at hand. 

Indeed, it had been approaching for several years now as Chinese manufacturers desperately migrated westward, attempting to perpetuate a regime of ultra-cheap factory labor. This perverse arrangement is virtually symbolized by Foxconn’s million plus workers in sweatshops throughout China—factories which keep the likes of Apple, HPQ, Sony, Samsung and all the rest, as well as their American and European customers, in cheap gadgets, cheap electronics and cheap computers. But economically speaking, China’s cheap labor frontier has now it reached its Pacific Ocean equivalent.

 

In short, the recent age of madcap central bank money printing brought a twin deformation. Its mobilization of the world’s cheap labor reservoir allowed out-of-control central bankers to pull a monetary Alfred E. Neuman. Why worry? There’s no inflation! 

Meanwhile, the middle and lower income households throughout the DMs were being wrangled into debt servitude. 

And now monumental excess industrial capacity will cause savage price-cutting as competitors scramble to generate enough volume and cash flow to cover the huge fixed costs and bloated balance sheets that attended the global investment boom.  The obvious victim will be profit margins throughout the world’s resource extraction and industrial production food chain. 

So Chongqing may be far away and hard to pronounce. But the workers striking there are actually marking a crucial inflection point. It is one that denotes the world’s central banks have painted themselves into a corner and that the global economic and financial game of the last two decades is about to change. Big time.

DYI Comments:  Do to the world's central banks we are now experiencing sub atomic low interest that have pushed investors in their "zeal for yield" into all asset categories bidding up prices to very low or negative future returns.  If the U.S. stock market goes back into a "risk on" mentality and bids prices up dropping future returns negative based on dividends, my sentiment indicator would move back up to a second secular top!

Market Sentiment

Smart Money buys aggressively!
Capitulation
Despondency--Short Term Bonds
Max-Pessimism *Market Bottoms*MMF
Depression
Hope
Relief *Market returns to Mean* 

Smart Money buys the Dips!
Optimism
Media Attention--Gold
Enthusiasm

Smart Money - Sells the Rallies!
Thrill
Greed
Delusional---Long Term Bonds
Max-Optimism *Market Tops*--REITs
Denial of Problem--U.S. Stocks
Anxiety
Fear
Desperation

Smart Money Buys Aggressively!
Capitulation

Needless to say this is one very expensive stock market with future returns being dismal at best and large draw downs (short term losses) a very real possibility.  With high valuation, massive complacency, and central bankers out of ammo (lower interest rates) a decline in the neighborhood 45% to 60% peak to trough is not something to dismiss out of hand.  A decline of 60% would place the market only slightly below fair value not coming even close to a secular bottom with PE10 in single digits.

Estimated 10yr return on Stocks

Using 5.4% as the historical growth rate of dividends and 4.0% as the ending yield.

Starting Yield*---------return**
1.0%-----------------------(-5.7%)
1.5%-----------------------(-1.7%) 

2.0%------------------------1.3% You are Here!

2.5%------------------------3.8%

3.0%------------------------5.9%
3.5%------------------------7.8%
4.0%------------------------9.4%
4.5%-----------------------10.9%

5.0%-----------------------12.3%
5.5%-----------------------13.6%
6.0%-----------------------14.8%
6.5%-----------------------15.9%

7.0%-----------------------17.0%
7.5%-----------------------18.0%
8.0%-----------------------19.0%

*Starting dividend yield of the S&P500-**10yr estimated average annual rate of return.

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 10/1/14

Active Allocation Bands (excluding cash) 0% to 60%

78% - Cash -Short Term Bond Index - VBIRX

15% -Gold- Precious Metals & Mining - VGPMX

 7% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX
 0%-REIT's- REIT Index Fund - VGSLX

[See Disclaimer]

 10-1-14

Maximum Aggressive Portfolio

(Super Max)

68% Cash - Hussman Strategic Total Return Fund - HSTRX

15% Gold - Tocqueville Gold Fund - TGDLX

  7% Lt. Bonds - Zero Coupon 2025 Fund - BTTRX

10% Stocks - Federated Prudent Bear Fund - BEARX

  0% REIT'S - REIT Index Fund - VGSLX

 This blog site is not a registered financial advisor, broker or securities dealer and The Dividend Yield Investor is not responsible for what you do with your money.

This site strives for the highest standards of accuracy; however ERRORS AND OMISSIONS ARE ACCEPTED!

The Dividend Yield Investor is a blog site for entertainment and educational purposes ONLY.

The Dividend Yield Investor shall not be held liable for any loss and/or damages from the information herein.

Use this site at your own risk.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.   

The Great Wait Continue!
DYI

The ten biggest threats to the global economy

Is the IMF right to think there is only a 1pc chance of a global recession over the next year?

In its latest World Economic Outlook, the International Monetary Fund (IMF) puts the chances of growth in global output falling below the recession threshold of 2pc next year at just one in a hundred. Is this too sanguine a view? 

Global recessions are quite rare events, so if you had to put money on it, you’d go with the IMF. Even when one part of the world is in recession, it is more than likely that others will be growing quite strongly, leading to aggregate growth overall. 

1. Geo-political risk is at its highest since the Iraqi war, and many would argue, much more dangerous, with Russia apparently determined to re-establish its old Soviet borders whatever the economic costs and to relations with the West. 

2. Both the situation in Ukraine and the Middle East pose a severe threat to oil and gas production, 

3. A hard landing in China seems to me to be pretty much hard baked into the system already. 

4. Normalisation of monetary policy in the Anglo-Saxon economiescould prove highly disruptive to financial markets, grown drunk on years of ultra-easy money. 

5. The existential threat to Europe’s single currency has been removed, but it has left the Continent in a state of economic torpor. 

6. The idea of “secular stagnation”, touted by a number of fashionable American economists. 

7. This loss of potential growth may have something to do with the size of the debt overhang. 

8. Grown complacent on easy money, financial markets are once again badly underpricing risk, with spreads compressed and volatility at exceptionally low levels. 

9. Few of the lessons of the crisis seem to have been learned. House price bubbles, a major contributing cause of the crisis, have re-emerged in a number of advanced and developing market economies. 

10. Ageing populations are reinforcing the loss of economic potential, which in turn will leave many countries struggling to maintain their pension and healthcare promises.

Is the IMF right to think there is only a 1pc chance of a global recession over the next year? I'd say that's wishful thinking.

DYI

The price of oil plummets along with stocks

The price of a barrel of West Texas Intermediate (WTI) oil fell 5% on Wednesday to $81.84, well below the $100-120 range of the past few years. Two reasons are being given for the startling collapse in oil prices. 

First, the supply of oil is surging. In the U.S., shale oil production ("fracking") has been growing rapidly. Non-OPEC countries have been exporting more oil. Canada has replaced Saudi Arabia as the largest source of imported oil to the U.S. 

Second, the demand for oil is falling. Sluggish economies around the world mean less oil is needed, and even China's demand is softening. 

Generational Dynamics predicts a global deflationary spiral, and the falling price of oil is part of that. Countries like Russia, Iran and Saudi Arabia, which depend on income from oil sales, will be suffering economic woes that will translate into a general global slowdown.

What’s behind the drop in oil prices? Here’s what analysts have to say

Since hitting a peak of over $107 in June, the price of West Texas Intermediate crude oil has since fallen over 24%. It dropped as far as $80 a barrel on Wednesday, the lowest since June 2012. Brent crude oil has also struggled, falling as low as $84.85 a barrel Wednesday. That’s the lowest since November 2010. 

“While decline in demand was the key driver for the 2008 crash, the sharp drop in prices this time around is being caused by a supply glut. Continued growth in U.S. shale production and increase in non-OPEC countries oil exports have led to excess capacity,” he wrote in a note to clients. 

What’s making the supply glut even worse? Slowing demand. The International Energy Administration lowered its crude oil demand projections for 2014 to about 200,000 barrels per day from the current 700,000 barrels per day. The IEA forecast is the lowest since 2009. 

“Chinese demand seems to be softening and there are severe questions about the Eurozone’s recovery, leading the International Energy Agency to cut its outlook,” Scotiabank Economics wrote. 

For most of the 21st century, Saudi Arabia has been willing to be the swing producer for the globe, helping to support oil prices. However, much of the rhetoric coming out of Riyadh indicates that the nation is not inclined to cut production or call for an early meeting, said Tom Kloza, chief oil analyst for GasBuddy.com.

DYI  Comments:  With oil prices and the world economy declining the Federal Reserve will more than likely attempt to pour additional gasoline (QE) onto the U.S. in an attempt to stimulate GDP growth.  So far deflationary forces have overwhelmed the Fed's money printing making them impotent.  If oil prices continue to drop this will embolden the Fed's to ramp up another round of QE.

 

Fed times pep talk to stop wild week of market swoons

“We have to make sure that inflation expectations remain near our target,” said Bullard in reference to the FOMC’s ongoing war against deflation. “And for that reason, I think a reasonable response by the Fed in this situation would be to…. pause the taper at this juncture.” 

Just like that feverish selling broke. Bullard’s stirring cry to non-action ringing in their ears, traders began furiously bidding for shares. Yes, a non-voting Fed board member’s oblique reference to the possibility that the Fed may not completely eliminate its now $15 billion monthly QE program this month marked the lows for the correction thus far.

DYI