Economy | - Part 30

A couple of CNBC videos shed some light on the recent market rout. First, Art Cashin, UBS’ director of floor operations at the NYSE, cites the combination of recently weak economic data in both the U.S. and the world along with some key technical factors.

Gloom, Boom & Doom author Marc Faber offers up a much more interesting explanation for what’s going on, namely, that “a vicious circle on the downside” is now underway as assets that were artificially inflated via central bank largess become less inflated.

Faber goes on to note, “Total credit as a percent of the global economy is now 30 percent higher than it was at the start of the economic crisis in 2007…”

Manufacturing Slows, New Orders Plunge

The Institute for Supply Management reported that U.S. manufacturing growth saw its sharpest slowdown in almost three years as national factory activity fell from 56.5 in December to 51.3 in January, the lowest level since last May. More importantly, the key leading indicator for new orders tumbled from 64.4 to 51.2, the sharpest decline sine 1980.

These readings were both above 50, the mark that separates expansion from contraction, but they signaled an abrupt change in trend that has clearly rattled financial markets.

ISM Manufacturing index

Other readings included a sharp decline in the production index, from 61.7 to 54.8, and a smaller drop in employment, from 55.8 to 52.3.

Inventories and backlogs contracted at a faster pace than the month prior and the prices paid component jumped from 53.5 to 60.5 in what was about the most negative report imaginable for a manufacturing sector that is still expanding.

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Grant: Fed Mischief = Bull Market

Jim Grant of Grant’s Interest Rate Observer didn’t comment on today’s departure of Federal Reserve Chairman Ben Bernanke in this CNBC video, but he did share some thoughts on why Fed policies will end badly someday, the most important reason being that “the Fed is engaged in a massive experiment in price control”.

In contrast to Grant, in this Bloomberg video and related story, India central bank Governor Raghuram Rajan bids Bernanke farewell, but was also very critical of the impact of the Fed’s money printing on emerging market economies – both when it was gushing at a rate of $85 billion a month and, now, as these asset purchases are tapered.

Ben Bernanke’s Legacy

This beautiful song, written and performed by Elaine Diane Taylor, chronicles some of Ben Bernanke’s accomplishments over the last eight years.

It will take some time to judge the Bernanke term at the Fed. Given the sequence of events for the last Fed Chair transition, analysts are understandably cautious about giving him a big thumbs-up at this point. Recall that, after the Greenspan term at the Fed ended in January 2006, it took a year of two for the policies enacted during that time to really flower.

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