Pensions and Debt Time Bomb In UK: £1 Trillion Crisis Looms

Pensions and Debt Time Bomb In UK:  £1 Trillion Crisis Looms

– £1 trillion crisis looms as pensions deficit and consumer loans snowball out of control
– UK pensions deficit soared by £100B to £710B, last month
– £200B unsecured consumer credit “time bomb” warn FCA
– 8.3 million people in UK with debt problems
– 2.2 million people in UK are in financial distress
– ‘President Trump land’ there is a savings gap of $70 trillion
– Global problem as pensions gap of developed countries growing by $28B per day

Editor: Mark O’Byrne

There is a £1 trillion debt time bomb hanging over the United Kingdom. We are nearing the end of the timebomb’s long fuse and it looks set to explode in the coming months.

No one knows how to diffuse the £1 trillion bomb and who should be taking responsibility. It is made up of two major components.

  • £710 billion is the terrifying size of the UK pensions deficit
  • £200 billion is the amount of dynamite in the consumer credit time bomb

How did the sovereign nation that is the United Kingdom of Great Britain and Northern Ireland get itself so deep in the red?

This is not a problem that is bore only by the Brits. In the rest of the developed world a $70 trillion pensions deficit hangs heavy.

We are all in this boat because we apparently didn’t learn from the massive man made crisis that was the 2008 financial crisis.

The ‘we’ is referring to UK individuals who are on average holding £14,367 of debt. It refers to the pension fund managers who are ignoring the fact they hold more liabilities than assets. It refers to banks and mortgage and loan providers who give loans to people who are already indebted and who will struggle to pay the debt back. It refers to a compliant media who do not have ask hard questions about irresponsible lending practices and cheer lead property bubbles due to getting significant revenues from the banking and property sectors.

And,  ultimately the ‘we’ is the government who peddled such terrible monetary policy that it has brought us as close to nuclear financial disaster as we have been since 2008.

In the red, everywhere

In the United Kingdom we are running a deficit not only in our day-to-day lives but also in our future lives.

Unsecured consumer credit is now at 2008 levels. There is £200 billion of unsecured credit. The FCA’s Andrew Bailey has put this dangerous issue at the top of the regulator’s agenda.

unsecured consumer credit

However it is not just for the FCA to be dealing with. There is no one organisation responsible for the huge levels of personal debt that will eventually cause this financial system to implode.

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Chemical Activity Barometer "Holds Steady" in September

Chemical Activity Barometer "Holds Steady" in September

by Bill McBride on 9/19/2017 01:38:00 PM

Note: This appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Holds Steady; Storms Likely to Cause Future Revisions

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), remained virtually unchanged in September despite the effects of unprecedented Hurricanes Harvey and Irma. Though future revisions are likely, the barometer slipped just 0.04 percent in September, following a 0.03 percent decline in August. Compared to a year earlier, the CAB is up 2.8 percent year-over-year, a marked pullback from recent year-over-year gains. All data is measured on a three-month moving average (3MMA) basis.

On a year-over-year basis, the unadjusted CAB is up 2.3 percent, also an easing from the previous six months.

Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added

Chemical Activity Barometer Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

CAB increased solidly in early 2017 suggesting an increase in Industrial Production, however, the year-over-year increase in the CAB has slowed recently.

The U.S. Current Account, the Dollar, and Real GDP Growth

The U.S. Current Account, the Dollar, and Real GDP Growth

The U.S. Current Account, the Dollar, and Real GDP Growth

September 19, 2017

The U.S. current account deficit, the broadest measure of net foreign demand, has been manageable in size and comparatively steady relative to GDP in the years since the Great Recession. The current account comprises trade in goods and services, net investment income, and transfer payments. As a percentage of nominal GDP, the deficit equaled 2.4% in 2015 and 2016, and 2.5% in the first half of this year. In 2009 when the U.S. economy emerged from the Great Recession, it equaled 2.6%. Then deficits of 2.9% of GDP were recorded in both 2010 and 2011, followed by 2.6% in 2012, and 2.1% in both 2012 and 2013.

The current account deficit now of 2.5-2.6% of GDP  matches the average size during the eight years through 2016 but is only half as much as the relative size during the prior six years through 2008, which was 5.1% overall. A deficit of 4.5% of GDP in 2003 ballooned to 5.1% in 2004, 5.7% in 2005 and 5.8% in 2006 before easing back to 4.9% in 2007 and 4.6% of GDP in 2008.

President Trump has put the goal of slashing America’s current account deficit at the center of his strategy to accelerate overall U.S. economic growth. The current account constitutes one of several components of gross national product, along with consumer spending, business capital spending, public sector expenditures and the change in inventories. But the current account per se is not a barometer of overall economic growth. As its name implies, the balance of payments (BOP), which accounts for all transactions between America and the rest of the world using double-entry bookkeeping, needs to zero out. A deficit in the current account portion of the BOP merely reflect a net inflow or surplus in net financial transactions, and this inflow confirms foreign confidence in the U.S. economy and in turns helps stimulate growth.

From an overall GDP standpoint the dynamism of two-way trade flows, that is good expansion of both exports and imports, exerts greater influence than the net current account. In the three straight years of 2004 through 2006, when the current account deficit exceeded 5.0% each time, real GDP advanced at a per annum pace of 3.25% versus 2.0% per annum in 2009-16, when the deficit averaged 2.5% per year. If acted upon, President Trump’s inclination toward protectionism is ironically likely to depress economic growth by suppressing both imports and exports.

A more covert form of protectionism than the imposition of tariffs and other barriers to imports can be implemented by manipulating the dollar. However, recent swings in the dollar have been less extreme than ones earlier in the era of floating dollar rates. The Federal Reserve compiles a trade-weighted dollar index against other major currencies whose values are market-determined. The index had a value of 108.19 on average in January 1973, fell to 92.02 in October 1978, recovered to 143.53 in February 1985, slumped to 80.34 in April 1995, but then soared to 112.2 on average in February 2002. These swings occurred in spite of occasional massive foreign exchange intervention by officials to resist market forces.

Currency market intervention, direct government purchases of one currency against another to counter market tendencies, now happens very seldom. Yet in post-Great Recession years, monthly averages of the trade-weighted dollar have been confined between 69.10 in June 2011 and 95.43 last December. The index last Friday was 86.61, not far from an average of 89.84 in August 2016. Inflation and interest rate differentials between major industrial economies are not as wide as such used to be, and as noted at the start of this update, the U.S. current account deficit in recent times has been manageable in size and not very volatile from year to year. Trump’s stress on the trade balance would have been more timely years ago than now.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: U.S. current account




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Bitcoin Towering Over $3,700, Countless ICOs and Bitcoin’s Fleeting Dominance

Bitcoin Towering Over $3,700, Countless ICOs and Bitcoin’s Fleeting Dominance

Bitcoin has been limited to a fixed trading range in the past 24 hours, with yesterday’s $3,869.49 daily high serving as the first resistance level, and today’s $3,463.96 daily low, holding as the bottom end of the range. Despite the rise in price, volume appears to be tapering off on Bitstamp. We will need to see a breakout above the existing trend lines, the daily high, and lastly the $4,000 price level, before confirming a completely new bull-run.

China cannot seem to leave the spotlight, with the noise from the ICO bans and exchange shutdowns, still profoundly resonating across the internet. Even mainstream media is drawing attention to the matter, with Bloomberg releasing an article quoting the BIS, on matters relating to bitcoin.

The other side of the spectrum has its share of naysayers as well, Professor Steve Hanke being one of them, an American applied economist at the Johns Hopkins University in Baltimore, Maryland.

With hundreds of ICOs to choose from, it is not surprising that countless new bitcoin and crypto millionaires, are using these startups as pass-throughtax vehicles. Business Insider delves into more detail on the subject in a recent article.

Furthermore, companies such as CryptoPay are also deciding to host an ICO, mainly for expansion purposes. This was a surprising announcement to say the least, especially coming from a firm that was content with focusing on debit card and payment processing.

It is understandable that the many people, who are new to the space, would flock to this form of crowdfunding. Trading requires ample patience, nerves of steel, and quite a bit of prior practical experience, not to mention how immensely mentally draining the whole endaveur often ends up being. Regardless, new users should be aware that partaking in such enterprises locks in funds, which could otherwise be available for other purposes, and recovering an investment can lead to OTC trading at heavily discounted rates, as the only available exit strategy.

Only a year has passed since bitcoin’s market cap was below $10 billion, when the first crypto currency held an overwhelming advantage over competing alternatives, quite a far cry from the September 1 record breaking $80 billion market cap. Exactly one year has passed since the 80% market share was all too common, with even the 90% threshold, not being too far from reach. The many elapsed months of volatile trading, have pushed bitcoin dominance downward, keeping it close to an approximate 50% market share most of the time.

Bitcoin started trading from the $2,972.01 weekly low on September 12 (GMT 07:00). The run-up continued until yesterday’s $3,869.55 daily high was realized. Trading has in the meantime, remained confined to today’s $3,463.96 daily low, and considerably beneath yesterday’s daily high.

If you have any questions and comments on bitcoin today, use the form below to reply.

Gold ETFs Regain Luster

Gold ETFs Regain Luster

It’s been a good month for gold exchange-traded funds. Tensions with North Korea, the falling dollar and the prospect of widespread devastation from Hurricane Irma boosted investor demand for gold, which is billed as a hedge against uncertainty and inflation. The $35.8 billion , the first and largest U.S. gold ETF, has added $2.2 billion […]

Fading the Momentum in Forex Trading

Fading the Momentum in Forex Trading

Occasionally price is able to accelerate further than any Forex trader might expect. In these cases, the price has a strong impulse or thrust and it keeps extending to new extremes. Although catching such an impulsive trade is great, what does a trader do when they missed the gravy train?

Traders could attempt to trade to the opposite direction. The probability of price moving in the same direction eventually decreases and a counter momentum opportunity arises. But when? And how does an FX trader enter such a trade?

Fading the Momentum

FADING THE MOMENTUM

Usually speaking I am an advocate of trading with the momentum and I attempt to enter such a trade either at the breakout itself or shortly after a breakout. In certain cases entering a trade when there is a high chance that momentum is fading could be equally lucrative.

In these cases the chances of a bounce (short), counter momentum (long) or reversal (very long) occurring are high because the original momentum just has to stop at one point or another: the currency cannot push into one direction forever without a stop. The danger of these setups is that traders often anticipate the turning moment too soon.

11- 11- 2014 image 2

Usually, the 2 following scenarios occur after the momentum dies out:

  • Price moves slow and tedious, which is a sign of flag or wedge. In this case ‘fading the momentum’ traders want to exit their counter momentum trade because a new momentum in the same direction could occur at any second;
  • Price has a similar momentum but then to the opposite side. This is the best scenario for the ‘fading the momentum’ trader.

IMPROVEMENT OPTIONS

There are methods how Forex traders can improve their odds of catching a bounce or counter momentum:

  • Check whether the previous momentum was against the trend because then there is a higher chance that a thrust will occur to the opposite side (be more cautious when momentum is with the trend!);
  • Use candle stick patterns to identify rounding formations;
  • Use an oscillator to have an idea when price has divergence or otherwise has overextended;
  • Identify support and resistance zones nearby which are strong enough not to break.

IN THE MARKET, FOR EXAMPLE…

In a past trading day, the market had such a counter trend momentum on several pairs such as the EURUSD, GBPUSD, AUDUSD and USDJPY and all indeed continued with the USD strength – as expected.

11- 11- 2014 image 3

This market offered similar opportunities but on different currency pairs. At one time,  GBPNZD, for instance, broke a channel to the downside (red lines). However, the breakout occurred then the RSI already was near an oversold value (dark red circle) and hence a bounce back up has occurred in the meantime.

The downtrend momentum could continue as soon as this upside retracement is finished so I am keeping a close eye on 4-hour candle stick patterns at the broken trend line (up to the top) for potential shorts.

11- 11- 2014 image 4

The same thing could be said for the GBPCAD, which offers trade setups to both directions: a bounce back up and then a bounce back down.

11- 11- 2014 image 5

CONCLUSION

Taking the ‘fading the momentum’ trade is an option when either trading the breakout or trading with the momentum is too late. Just be cautious with trading against a bigger trend or when chart patterns emerge: a market exit at about break even is often the best place to exit.

Do you sometimes take these trades?

Thanks for sharing and Happy Hunting!

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Week Ahead: Dollar mixed awaiting Fed policy meeting

Week Ahead: Dollar mixed awaiting Fed policy meeting

The U.S. dollar managed to end the week on a positive note despite a lower than expected retail sales reading on Friday and flat U.S. inflation data on Thursday. Economic data has begun to reflect the impact of Hurricane Harvey and later in the month, the effects of storm Irma will be taken into account. The pound was one of the few currencies that gained against the dollar after the Bank of England (BoE) left rates unchanged on Thursday, but said rate hike could home sooner than expected boosting the currency against the USD. Central banks will remain in the spotlight with the Fed and the Bank of Japan set to publish their September monetary policies in the week of September 18-22.

The U.S. Federal Reserve will publish its rate statement on Wednesday, September 20 at 2:00 pm EDT. The U.S. central bank will also release its updated economic projections and will host a press conference at 2:30 pm with Fed Chair Janet Yellen. Last month the Fed added that “relatively soon” it would start shrinking its massive balance sheet accumulated during its QE program. On the topic of a change to the benchmark, Fed funds rate the CME FedWatch tool rates the probability of a September rate hike at zero percent, with December a 50% chance.

The Bank of Japan (BOJ) will publish its monetary policy statement on Wednesday, September 20 at 11:50 pm EDT with a press conference to follow on Thursday, September 21 at 2:30 am EDT. The Japanese central is not expected to make a change to its monetary policy as inflation remains stubbornly low despite unprecedented stimulus by the BOJ. Growth has continued its upward trend but with little help from inflationary pressures, no reduction in stimulus is on the horizon.

The euro/U.S. dollar (EUR/USD) currency pair lost 0.812 % in the last five trading days. The single currency is trading at 1.1932 after US tax reform got closer to reality this week. The euro had advanced at the start of the week as more USD weakness was anticipated, but a turnaround in market expectations on a December rate hike and a show of momentum on tax reforms started a dollar rally putting the pair below 1.20. Political uncertainty has been a big factor of USD trading and a Trump administration ready to embrace dialogue with Democrats is seen as a productive development.

Next up will be the September Federal Open Market Committee (FOMC) meeting. The market is expecting the Fed to formally announce the start of the reduction of its balance sheet. Since the move is expected to be gradual the Fed could push the announcement back, especially if there is some uncertainty about a December rate hike but the dollar would suffer if that is the case. The White House has remained tight-lipped about who will be the Fed Chair next year. Yellen’s term ends in February, and with the falling out to favor of Gary Cohn, she could even remain in the job. While Janet Yellen was not the first choice of the Obama administration she got the nod after a scandal took the front-runner Larry Summers out of contention.

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