Sunday, March 18, 2018

GDP difference between US and Euro Area countries (19 countries)

After doing some research at oecd.stat public webpage. I figure it out that there is a difference between both countries in how the GDP is divided.

If we look at the "Gross domestic product (expenditure approach)" for both.

EURO AREA (19 countries)
Gross domestic product (expenditure approach
Final consumption expenditure
Households and Non-profit institutions serving households
Final consumption expenditure of general government
External balance of goods and services
Gross capital formation

It`s interesting to check that meanhwile euro area household consumption represents 54% of the GDP , for US, this is almost a 70%. Huge difference in my opinion.

In order to equalize a little bit the final consumption expenditure, Euro are governments needs to "expend" money and introduce consumption on the equation. 20% of GDP in euro area is due to governments while in US only 14%

Saturday, March 17, 2018

GDP Output Gap by 2017 November

If before 2015 almost all countries (from the countries listes in our analysis, in the image below) were in a negative GDP gap between the potential GDP and actual GDP. Actually some of them are already in positive GDP gap and the rest are almost at full GDP capacity. The estimation for next year (2019) is that almost all of them will reach and overpassed the potential GDP.

This is what concerns more. ¿Is it possible to maintain years on this pace before any recession pops up?

Economic Outlook No 102 - November 2017   : Output gaps: deviations of actual GDP from potential GDP as % of potential GDP

If we check the OECD countries, this year is pretended to reach our potential GDP and even pass it. The question here will be, how much years could we keep this pace?. Bets are open :)

I was thinking US was even higher that OECD, but seems they are "running" at similar pace. The stock market at leats jumps much more in US that in Europe. That`s weird.

Germany figures are very surprising. Germany remains since 2014 over the potential GDP and no recession yet started.

Spain seems that has recovered at a speedy pace

Nothing else to say :) :)

Saturday, March 10, 2018

2018 recession is coming, big drops can happen

I will move the language of this blog to english from spanish. So from now on, all my post will be posted in English, sorry for the inconvenience.

Let`s start with what most concern us. After the february 2018 sell-off and volatility rise, the stock market comes back to reality: It is risky to "dance" in it. There were plenty of years where there were no risk at all playing in the stock market casino. Everybody was capable of gaining money, just betting that the market will spike. Those year have come to an end and with it the doubts if this means that the "music" has stop at all.

Since the lowest of the SP500, it has increased an aproximatelly 400%. US tappering has ended years ago, and now the concerns are on the inflation. After pumping so much money in the system, who knows what can happen, maybe in a quarter the inflation can rise and the interest will need to increased a more lot than expected. This was the reason of the february 2018 sell off, due to a very good increase or employee hourly earnings that can bring on inflation into the system.

Apart from that, bonds were forced to stay in a superlow interest, due to the countries that were buying like a crazy, bonds of all kind. Having such big buyer, the countries did not need to pay much interest for the debt, however, who knows what can happen when the BIG buyer stops buying it (US stops buying bonds end of 2014). Less buyers in bonds, means that the countries will need to pay more to sell same quantity of bonds. Apart from that, in order to fulfill the tax cut in US, the government most probably will need to ask for more funds (so more bond selling). More bond selling and less buyer means, increasing the interest of 10Y Note or 30Y Note.

Increasing the 10Y and 30Y Note, will affect directly to consumer on their mortgages, and in order to pay for the higger monthly payments , consumer will need to reduce consumer spending. Until nowadays, the earning company figures were increasing quarter to quarter. But this bond increase hits doble side to companies, cause the companies will need to pay more for their debt (as the interest rates spikes) and the consumer spending will be reduced.

Before analizing the SP500 graphs or stoxx50. I would like to check the bond interest rate historical chart.

Since june 2017, the interest of 10Y note bond has spike from 1,4% to 2,8%. If it crosses the 3%, it will pass the 2013 figures.

Apart from that, a 3% interest on super save products (US bonds) might move the money from stock market to bonds, creating big sell in stock market and buying a lot of bonds (which will push donw the interest rate). More or less in both (stock market and bond market) the capitalization aprox. to 100 trillion $. Meanwhile the bond interest rates hikes, all system shakes.

Let look at stoxx50, monthly chart. Today I will not dig into weekly, daily or even smaller timeframes. Let`s have a look to global market trend

Each time, the macd histogram crosses from positive to negative, big events used to happen. On september 1999, I don´t remember if something special happens. But that month, the histograms crosses to negative, just before rumping up the stock market for 6 months and before the huge sell off that drops the stock market 66%. The monthly chart was again negative on september 2000

Then next time it crosses from positive to negative, was november 2007 before the big crash of 60%.

Then we have another red histogram on august 2011, in this case it was too late the monthly chart. That august the stoxx50 has already drop 13%.

The market was prepared for another sell of on december 2015, but the next month, the QE in europe was published and stock market rump up, till july 2015. We had another 30% drop.

And here we are again, the histogram was sliding down, and this february 2018 went red. So here we have our doubts. What will happen?. If I look to history, seems to be a very reliable indicator, that the market can go down.

Apart from that, there will be no QE in a short period of time, most probably interest rates will go higher in US (and europe will start tappering). The tensions on US tariffs for steel and alumium can speed up the crash too.

So if we mix all in one cage, I would say the recession, at least on stock market is close by. Maybe not next month, but very soon.

Be prepared :(