Declining Profits, Rising Defaults Assure 2016 Recession…” Even the Great Depression has nothing up on what we are now entering.”

Sunday, April 10, 2016
By Paul Martin

David Haggith
April 8, 2016

I believe a 2016 recession is already a fact in the US, and the Great Recession will return with a vengeance. That recession never really ended. It was simply propped up while all of its fundamental flaws remained, and the props are now all ended or failing. It will ultimately become the mother of all recessions. Even the Great Depression has nothing up on what we are now entering.

GDP estimates are increasingly moving in favor of my prediction that the US has been entering a recession since the start of 2016. (Keep in mind recessions are always declared after the fact — after quarterly statistics are in. That’s why I call it a “prediction,” even though I say we have already entered it. The prediction is that it will eventually be declared, but not for many months.)

End of stock buybacks triggers 2016 recession in the US

I’ve noted on The Great Recession Blog a few times that the only force that has been sustaining high stock market values in the recent rally — now ended — has been the huge number of incestuous stock buybacks. The corporate elite have been saving themselves by desperate measures that will leave smaller investors holding crashing shares. When the shares are done crashing, the elite investors will come back in with their cash and thereby profit from the crash.

In stock buyback programs, companies create their own demand for their stocks by taking out low-interest loans to buy their own shares back. Sometimes the major investors on the board make this decision and focus on buying their own shares back. Those extraordinary measures to create stock value are now ending, partially for temporary reasons and partially, it seems, as a reversal in the buyback trend (maybe because board-member aims of cashing themselves out have been achieved).

As a result, we see the recent stock rally has hit a new ceiling. Goldman Sachs reported earlier this week that the end of stock repurchases threatens the rally, and we can now see that the rally has been threatened practically to death as it now struggles against the market’s lowering ceiling like a hero in one of those rooms where the ceiling keeps coming down inch by inch until it crushes you. Since the end of QE, buybacks have formed the primary demand for stocks while the kinds of economic factors that ordinarily create demand have receded.

The Rest…HERE

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