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  1. 1. December 1, 2014 2014 issue 21Talking TurkeyThe robustness or weakness in holiday shopping will confirm the true cautious state of American households. A batch of surprisingly weak data have fuelledsentiment that there is some slowing in the pace of economic growth. First and foremost is the slippage in energy prices. While possibly a boost for households,the speed of the down sweep in oil may yet become disruptive. Moreover, the fall in energy prices has clouded the concerted push by central banks to boost theinflation rate and stoke consumer and business confidence. An anemic housing market recovery in the U.S. and prolonged economic weakness in Europe andJapan, and a weaker China growth path have provided an uneven and subdued backdrop for US growth. Note that the U.S. which, despite being one of the bestperforming developed economies, has not reached the steady 3% annual growth threshold in nine years. Growth in 2014 likely would have breached this mark,except the severe winter weather that started the year in a deep hole and the blistering weather recently. But perhaps in 2015! Economic prospects are flaggingacross Europe, Japan and big emerging markets such as India, a turn that presents fresh challenges to the relatively forceful U.S. economy at a time when theworld needs a dependable growth engine. Multiple strands just this Friday pointed to slackening economic vitality across the globe. In Europe, consumer pricesrose in November at their slowest annual pace in five years, deepening fears the continent may be tipping toward deflation. In Japan, the core consumer-priceindex in October rose at its slowest pace this year, even after massive stimulus efforts. The low-growth outlook is raising questions over whether weak demandcould wash onto U.S. shores in the coming months, even as American businesses and consumers benefit from falling gasoline prices heading into the holidayshopping season. Americas economy has grown steadily this year after a first-quarter contraction, and employers have added more than 200,000 jobs a monthfor nine straight months through October. But consumer spending and business investment in the U.S. was muted in October, suggesting the U.S. might provideinsufficient demand to help buoy other economies. And preliminary evidence for the Thanksgiving period was very weak relative to last years pace of shopping.ABRAHAM GULKOWITZabe@gulkowitz.com917-402-9039Two-day start to holiday shopping season fails to boost spendingOil-Field GiantsWork on MergerHalliburton is in talks tobuy Baker Hughes, adeal that would help thebig oil-field servicescompanies contendwith falling oil pricesThe yen looks like it'sready to get crushedDEEP FREEZE BLANKETS USA .Will hit economic numbersStocks soar to records onglobal stimulus movesWal-Mart Bulls Betting on Oilto Light Up Christmas SalesMoodys Joins Fitch Slamming Subprime Auto BondsHonda Motor Co. vehicles are displayed for sale at the Paragon Hondadealership in the Queens borough of New York. The boom in easy financingis helping fuel the fastest pace of car sales in eight years and has drawnscrutiny from the U.S. government as underwriting standards decline amidincreased competition from lenders. Photographer: CraigWarga/Bloomberg The booming market for securities backed bysubprime car loans is riskier than their ratings imply, say two of the biggestassessors of bond credit quality.Asian central banks under pressure inwake of easing by Beijing and TokyoEasing measures in China and Japan have raisedexpectations that other Asian central banks willfollow suit with growth-boosting interest rate cuts.Energy company stocks and thecurrencies of major oilproducingnations stumbled Friday as OPECsdecision to keep pumping crude athigh levels despite a glut rippledacross the globe.Russias overnight interbanklending rate climbed to thehighest level in more than 5 yearsamid ruble liquidity squeeze.The European Parliament (EP) voted on November 27to 'unbundle' Google's search activities from its otherbusinesses. The vote is the latest stage in a deterioratingrelationship between European governments and major US-basedinternet companies. The European Commission claimsthat the EP resolution will not affect its handling of the Googlecase, but it will remain under intense pressure to get tough withGoogle -- particularly since Paris and Berlin have involvedthemselves in the issue of unbundling and/or regulation of themajor internet platforms.PMI measures fall to 17-month low, signalingdownturn in Germanmanufacturing
  2. 2. The PunchLine...2December 1, 2014In This IssueHeadlines and data appearing in The Punch Line came from widely available publications includingnational and international newspapers, trade journals, economic and industrial bulletins and news websites. The Likelihood of Unlikely Events... (pg 6) Engines of GrowthDespite U.S. recovery, most of the global economy faces woefullyinadequate growth prospects. Risks of a crash in commodity pricesonly raises the dangers. Very obvious financial vulnerabilities, andserious geopolitical concerns are aggravating the problems of clearlyinsufficient growth in the world economy. And lets not forget thatmany of the challenges cannot be resolved easily (pg 7) Households (pg 8) You Cant Handle the Truth (pg 9) Credit (pg 10) More Credit (pg 11) U.S. Jobs (pg 12) A New Geography of Business (pg 13) Pumping Iron (pg 14) The DNA of Business (pg 15) Real Estate and Construction (pg 16) Will Life Ever be the Same? (pg 18) Talking TurkeyThe robustness or weakness in holiday shopping will confirm the true cautiousstate of American households. A batch of surprisingly weak data have fuelledsentiment that there is some slowing in the pace of economic growth. Firstand foremost is the slippage in energy prices. While possibly a boost forhouseholds, the speed of the down sweep in oil may yet become disruptive.Moreover, the fall in energy prices has clouded the concerted push by centralbanks to boost the inflation rate and stoke consumer and businessconfidence. An anemic housing market recovery in the U.S. and prolongedeconomic weakness in Europe and Japan, and a weaker China growth pathhave provided an uneven and subdued backdrop for US growth. Note that theU.S. which, despite being one of the best performing developed economies,has not reached the steady 3% annual growth threshold in nine years. Growthin 2014 likely would have breached this mark, except the severe winterweather that started the year in a deep hole and the blistering weatherrecently. But perhaps in 2015! Economic prospects are flagging acrossEurope, Japan and big emerging markets such as India, a turn that presentsfresh challenges to the relatively forceful U.S. economy at a time when theworld needs a dependable growth engine. Multiple strands just this Fridaypointed to slackening economic vitality across the globe. In Europe, consumerprices rose in November at their slowest annual pace in five years, deepeningfears the continent may be tipping toward deflation. In Japan, the coreconsumer-price index in October rose at its slowest pace this year, even aftermassive stimulus efforts. The low-growth outlook is raising questions overwhether weak demand could wash onto U.S. shores in the coming months,even as American businesses and consumers benefit from falling gasolineprices heading into the holiday shopping season. Americas economy hasgrown steadily this year after a first-quarter contraction, and employers haveadded more than 200,000 jobs a month for nine straight months throughOctober. But consumer spending and business investment in the U.S. wasmuted in October, suggesting the U.S. might provide insufficient demand tohelp buoy other economies. And preliminary evidence for the Thanksgivingperiod was very weak relative to last years pace of shopping. (pg 1) In This Issue (pg 2) The Return to Normal (pg 3) Go Figure (pg 4) Dislocation, Dislocation (pg 5)Contact information:Abraham Gulkowitzphone: 917-402-9039 email: abe@gulkowitz.com
  3. 3. The PunchLine...3December 1, 2014The Return to Normal ?Central banks have pumped trillions into the financialsystem Asset prices, more than vibrant economic growth,has resulted so far. If QE-inflated asset prices are notvalidated by growth, the repricing and transfer of risk againstthe backdrop of diminished market liquidity could provebrutal and destabilizing. Such a scenario represents a big tailrisk regulators, and investors, should seriously consider
  4. 4. The PunchLine...4December 1, 2014Go Figure Where Now?Eurozone bulls incountdown to QE chargeBuyers claim easing could leavestocks with further to rally than theeuro has to fallChinas central bank unexpectedly cut itskey interest rates for the first time in morethan two years. The one-year lending ratewas cut by 40 basis points to 5.6% and theone-year deposit rate was cut by 25 basispoints to 2.75%. The surprise rate cutcame as the worlds second largesteconomy is forecast to register itsweakest growth in nearly 25 years.Lending eased and property pricesdeclined in October, while bad loansincreased sharply in the third quarter.Weaker data had raised calls for morestimulus from many quarters including theState Council.China central bank data show overallcredit growth through the first 10months of 2014 is running Rmb1.27tn($207bn) behind last years pace.The weak eurozone economy poses a key threat to global growth, the OECDwarned yesterday, urging more flexibility in fiscal rules for struggling EU memberslike France and Italy to prevent another recession. Forcing the two major Europeaneconomies to meet the EU's tough deficit criteria "would likely depress activity furtherand even risk tipping the euro area into another recession," it said. France and Italy's"slower pace of structural fiscal adjustment ... proposed in their 2015 budget plansseems appropriate," said the Organisation for Economic Co-operation andDevelopment, which provides econ