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List of Seven Troubles Assailing the US Economy as We Head into Summer

The following is not simply a list of negative risks to the economy but a list of of serious economic conditions that are already placing drought-like pressures on the overall economy. This list doesn’t include the long-term structural problems with the economy, such as its high debt burden, but just the forces that have risen against it this year.

  • First-quarter US GDP growth slowed to a stagnant 0.7% (annualized) — stagnant in that population growth alone should cause GDP to rise more than that. So, really, GDP per capita is in recession, though that is not technically how a recession is called.
  • Moody’s just downgraded China’s credit rating for the first time in thirty years, warning of fading financial strength as economy-wide debt mounts. Moody’s attributed the growing risk to years of credit-fueled stimulus, indicating the Chinese economy has grown reliant on stimulus. China’s debt was growing at an annualized rate of $4 trillion (30% of GDP)! China’s efforts to contain stimulus bubbles are expected to inhibit its economic growth, which will bring down the global prices of commodities like iron, copper and oil with similar collateral impact in the US to what we saw last time commodities like oil crashed. The Shanghai Composite stock index has fallen about 10% in less than two months. (Recall the damage China did to global stock markets from the summer of 2015 through early 2016 as the Chinese market melted down and China had to socialize most of its own stock market to save it from utter ruin. Today the Chinese government market saviors rushed in to prop it up again.)
  • The Federal Reserve appears to be set on lowering Fed stimulus, while it is also becoming clear that no fiscal stimulus will come out of the federal government this year. Even those working on Obamacare and the Trump Tax plan say early 2018 is the best they can now hope for. The Fed has a track record of killing recoveries by remaining headstrong on stimulus retreat once it starts down that path. Markets don’t like uncertainty, and everything investors have been banking on looks increasingly uncertain at the moment. With no fiscal rain at at time when the streams of monetary stimulus are drying up, this promises to be a dry summer. If the Republican-led house and senate become even more divided, just remember Lincoln warned, “A house divided against itself cannot stand.”
  • The stock market has stopped rising, and the breadth of stocks that are rising against those that are falling has slowed to a mere trickle. Only a few stocks performing very well are keeping indexes afloat. Other than the five fabulous FAANG stocks, the market has been receding since March. Correspondingly, the number of stocks still trading above their 200-day moving average is growing quite narrow. The volume of advancing issues on a fifty-day moving average has fallen sharply. Price momentum has stalled. These are  all traditionally fairly sound signs of a market top.

The minute [markets] stop moving, a powerful, even if short-lived, impulse takes over to reevaluate, cherry-pick and average down. Even if you’re sure the story hasn’t run its course, it takes real moxie to remain exposed to the other side of trades you were very comfortably holding for the previous weeks and months. We’re all leery of getting caught in over-crowded trades…. This is a be nimble, very nimble, environment…. Traders will need skills that have atrophied over years. (Zero Hedge)

  • Existing home sales started drying up rapidly in April, falling back 2.3% (measured in number of units sold). Home prices remain hot, in fact, spiking another 6.6%, as inventory of available homes remains slight but has started to build. The amount of time a house remains on the market jumped almost half a month just between March and April. That’s the way things get at the moment of climate change when buyers are unwilling to endure escalating prices and sellers are unwilling to lower prices. (March’s sales hit the same hot summit they last attained in 2007. Ring a bell as to what might come next?) Construction of new homes and sales of new homes also plunged in April. New-home sales fell 11.4% from a nine-and-a-half year high. These drops imply a hit to second-quarter GDP, where housing plays a major role, but it remains to be seen if April was a one-off or an inversion in the housing climate.
  • Bankruptcies are on the rise where it matters most. The Southern District of the bankruptcy courts of New York, which includes all the major national and international businesses headquartered in Manhattan, saw a sharp rise in Chapter 11 and Chapter 15 cases. Chapter 11’s tripled in the first quarter while Chapter 15’s shot up seven-fold in. A lot of this is due to the all-out crash of major brick-and-mortar retail. Millions who are laid off in this collapse will not find jobs at highly automated Amazon, which is replacing brick and mortar stores. (And what will be the knock-on effect as anchor stores in malls close, strongly impacting the customer draw to malls for smaller retailers?)
  • Auto sales also dried up, down 8.2% from their December peak. For over a year, I’ve been warning that auto sales would wither in 2017. Desperate tactics that made sales great during 2016, I pointed out, would lead to a major failure this year, exactly as happened during the financial crisis when automakers teetered into or to the brink of bankruptcy at the same time as home owners. Ford just fired its CEO due to failing sales and is slashing 10% of its global work force (cutting about 20,000 employees, about half in the US, offsetting the 700 Ford jobs Trump recently saved). Even Ford’s mainstay truck sales are down. US automakers have, exactly as I predicted last year, entered an auto recession.

 

There is a fair amount of high pressure building that could mean a withering el-niño summer for the economy during a time when Fed relief, which the economy has grown dependent on, is drying up while fiscal refreshment is going to remain distant. As additional pressures build against the economy in the next week or two, I’ll add to the end of this list at The Great Recession Blog. So, you may want to check back.

 

UPDATE 05/30/17:

 

Total household debt now exceeds the peek it hit just before the economic collapse into the Great Recession hit. While the number of households is also up, wages are correspondingly down, so households have maxed out … again:

 

Total U.S. household debt was $12.73 trillion at the end of the first quarter of 2017, up $473 billion from a year ago, according to a Federal Reserve Bank of New York survey. Total indebtedness is now 14 percent above the 2013 trough of household deleveraging brought on by the 2007-2009 financial crisis and Great Recession. The previous peak, in the third quarter of 2008, was $12.68 trillion…. Auto loan and credit card delinquency flows are now trending upwards, and those for student loans remain stubbornly high.” The survey showed lenders tightened borrowing standards for home and auto loans, a sign of their increased caution. (Newsmax)

 

 

While population rose about 7% between 2007 and 2014, wages for most people have dropped about 5% during that time. (The time frame of the graph above.) Those two changes roughly cancel each other out. With lenders now tightening borrowing standards for mortgages and auto loans out of caution, they are draining liquidity out of those markets. That may be contributing to the decline in those markets as listed above. Lowered liquidity at at time when we are hitting peak debt again are combined factors that will likely keep those markets down.

 

UPDATE 06/01/2017:

 

Housing and all other construction take a big drop as we move into June, following March’s rise:

 

U.S. construction spending recorded its biggest drop in a year in April as investment in both private and public projects fell…. The Commerce Department said on Thursday that construction spending tumbled 1.4 percent…. Economists polled by Reuters had forecast construction spending increasing 0.5 percent in April…. In April, private construction spending fell 0.7 percent, also the biggest decline in a year…. Investment in private residential construction fell 0.7 percent after six straight monthly increases…. Investment in residential and nonresidential structures such as oil and gas wells was one of the economy’s few bright spots in the first quarter. (Newsmax)

 

So, now, even one of the few bright spots is gone.

 

Share prices of the biggest U.S. banks reportedly are flirting with bear-market territory amid fears of weak trading revenues and fading hopes for President Donald Trump’s ambitious economic agenda.

“Goldman Sachs and Bank of America were among the biggest beneficiaries of the stock rally in the weeks after Donald Trump’s election victory in November, as investors looked forward to a profit-boosting mix of higher interest rates, lower taxes and lighter regulation,” the Financial Timesreported.

“But some of those underpinnings have fallen away since then, as Trump’s early setback over healthcare policy cast doubt over his ability to implement other promised reforms,” the FT explained….

Bank analysts have been switching “blue-sky earnings scenarios” of late last year with “more cloudy” outlooks…. Hopes of corporate tax reform happening any time this year have almost evaporated.

“Tax reform was difficult enough in 1986, when you had bipartisan support and an extremely popular president…. Without either, it always looked like a bit of a long shot.”

To be sure, in an even more disturbing sign, CNBC reported that the financial sector “just gave up all of this year’s gains, and some strategists say that’s sending the broader market a message about the health of the economy.” (Newsmax)

 

Pending home sales also just tanked, taking their biggest drop since August, 2014. Signed contracts fell 5.4% from a year ago.

Auto inventory are back up to their highest point since just before the auto crash in 2007:

 

With 935,758 unsold GM units collecting dust in dealer lots, this was the highest inventory number in 9.5 years, the highest since Nov. 2007, and, as Bunkley reminds us, “one month before the recession officially began.” (Zero Hedge)

 

That was April inventory. May’s inventory, just in, rose by another 30,000 vehicles.

The state of Illinois was just downgraded to the lowest credit rating ever given to a U.S. state (one mark above junk) by Moody’s and S&P. The downgrade is due to “unrelenting political brinkmanship [that] now poses a threat to the timely payment of the state’s core priority payments.” That brinkmanship is a just a microcosm of what is going on in the US congress. It is also due to “intensifying pressure from pension liabilities,” something congress hasn’t even begun to address with both government pension funds and Social Security and Medicare. Wait until that battle hits! If Illinois’ credit gets downgraded to junk, it’s financial problems instantly rise exponentially.

The retail apocalypse grows: Not even halfway through 2017, closures of retail stores have doubled last year’s closures as of this time and already exceed the last peak in closures during the crash of 2008. The bottom line is simple here. Commercial eal-estate investment trusts (REITs), malls, mortgage-backed securities (remember those), and their bankers are in a lot of trouble. The anchor stores are closing up the worst, which will pull others down in the wake by reducing traffic to malls. “Thousands of new doors opened and rents soared. This created a bubble, and like housing, that bubble has now burst.” According to Credit Suisse, 20-25% of US shopping malls will shut down within the next five years. While this is due to a paradigm shift in how people do their shopping, not just an overall reduction in retail sales, it will send shudders and close shutters throughout real-estate-based retail economy, having a huge impact on construction, land sales, banking, jobs, etc.

Things look even more perilous in the stock market at the CAPE ration, which measures how pricy stocks are in comparison to their ten-year average has just hit thirty, matching the rarified atmosphere of stock prices when the 1929 crash happened. The only time stocks have ever been more overpriced was just before the dot-com crash.

 

Albert Edwards, global strategist at French bank Societe Generale, said earnings reports for U.S. companies show that their overseas profits have grown but are still falling domestically. The decline may even point toward recession. “Domestic non-financial economic profits are really struggling badly and are still down 6 percent year-over-year,” Edwards said…. (Newsmax)

 

The US jobs market finally tanked, coming in at 138,000 new jobs in May, which is near the generally considered recessionary level of 100,000 new jobs. That’s a 32% drop from last month and is much lower than any economists expected (the average expectation being 185,000 new jobs). Even the insanely optimistic Ron Insana said the report could be a worrisome sign of a “pronounced economic slowdown,” according to Newsmax. Wage data was also softer than expected.

 

Insana offered a litany of economic omens: looming interest rate hikes, banks pulling back on extending auto credit, soaring housing affordability and softening inflation rates after briefly, and only briefly, touching the Fed’s 2 percent target…. “And, most important, consumer confidence has begun to dip….”

“With the Federal Reserve poised to raise interest rates again in June, today’s data notwithstanding, and scant fiscal stimulus loaded in the Washington pipeline, this could be the beginning of a worrying trend,” he wrote. (Newsmax)

 

When even Insana is starting to read bad news in the tee leaves, you know it’s getting hard to keep putting lipstick on this pig of an economy.

 

  • Eddie

    Hey Dave,

    I basically have all of my net worth in my savings account. Excluding my retirement stuff. I’ve been saving since i believe there will be a crash so i want to buy on the cheap. I noticed that you wrote someone stating that a bank can wipe out your savings account. Do you think that would happen? I’ve kept it there for a reason and if you think that would happen, then i have no idea what i should do. Any suggestions with that? Btw, i use a credit union. If that helps. Thanks!

    • At least in a bank or CU you have insurance on your deposits in a standard savings account. While the possibility of those accounts being wiped out exists, I think it will be the last area to get wiped out. If even FDIC protection proves incapable of standing up in the upcoming downfall, I don’t know what else would remain standing. Even gold can be wiped out by the government as it was during the Great Depression when FDR set a value on gold and required everyone to turn their bullion over to the federal government, keeping only their jewelry and artifacts.

      There is no perfect security in the world of finance. So, you do your best and trust in God (or, I guess, whatever it is you hang on to). As the solvency of nations collapses and they turn on the poor and the middle class again by breaking their promises of security (Social Security, Medicare, etc.), social unrest will rage. Maybe the middle class will financially attack the top ten percent by seizing government at the election box and clawing back all the extravagant benefits that class has seen. Maybe they’ll say, “You don’t touch a dime of our Social Security until you all sacrifice 100% of yours.” Who knows? Maybe they’ll all just mildly go like sheep to their slaughter and say, “Sure, take my entitlements.”

      Point is the level of turmoil will increase beyond the divisions we now see in America as people start to realize the financial problems we’ve kicked down the road won’t kick any further. That will build in the years ahead as more and more people retire into those benefits to find they are retiring into a vacuum and that government is more than willing to break its most sacred promises. (After all, the reason you are ENTITLED to those monies is that they were yours in the first place, taken and held in the good faith and trust of the government to be there for you in your retirement.)

      So, what will happen during this train wreck that will take years to play out, I don’t know. We do our best to be prepared, and then we do our best to make it through and to not be embittered by all that is breaking up around us. Or we declare a universal debt jubilee, cancel all debts everywhere, which destroys the banks and everyone whose wealth is built on debt (but which was mostly acquired by hideous levels of usury). That means we also lose our retirement, but we probably lose that anyway, and, at least, we go into retirement debt free and society’s burdens are cast off so that it can soar. Realistically, that’s not going to happen, and nations might even go into war over sovereign defaults. But it is really the only solution that will not enslave the poor and the middle class to the banksters for the rest of their lives.

  • Don_in_Odessa

    The collusion of central banksters around the world has prevented what has been touted by the doomsters as the inevitable demise of the civilized financial world since before the turn of the century. As long as they keep agreeing to wipe each other’s backside, corrections and near collapses are our future. End of the civilized world? Barring a nutball starting a nuclear war it is doubtful. But an engineered depression including war is likely.

    As for the stock markets, extremes of price in both directions at the end of cycles are the norm. I welcome the extremes. They are signals for profit in the other direction. I do expect a retest to May lows possibly even April lows. But we may not get it. We just may move on up to a blow off top now. Either way, before a real collapse, I do expect a blow off top. An exponential rise that at the end of it’s rise will have the janitors and fruit pickers talking about the markets. Then shall the end come. “Then let those who are in Judea flee to the mountains, let those in the city get out, and let those in the country not enter the city.” This next depression is going to be a doozy. The purpose of the preceding is a reset of bankster fraud and return to solvency. The fraud is exponentially higher, relatively speaking, than anytime in history.

    “It is the infidel who does not provide for his own” Prepare for hard times be as self sustaining and self reliant as you can possibly afford. Preparedness is not a lack of Faith as some well meaning folks would say. Doing all one can and then trusting God to fill in where we lack is true Faith. Where would we be had not Noah prepared. God is calling all of us to prepare. The signs are all around us. None of us, rich or poor, can see tomorrow and know every possibility to get ready for. While our Salvation does not depend on works, it is written: “Faith without works is dead,” As in the grave folks. At this very moment a storm is tearing apart peoples lives. Be it man made or nature, a storm, our way comes.

    • I’m confused by your response, Don. On the one hand, you say the next collapse “won’t be the end of the world,” which I agree with, if by “the end of the world” you mean an event that causes the history of humanity to come to an end or the planet, itself, to explode. But you go on to compare it to the days of Noah which is certainly an end-of-the-world, apocalyptic story if you mean “end of the world” in the more common sense of end of an age that leads into a whole different kind of world than what we’ve known — through a very painful and destructive transition (something like the end of the Jurassic age was for dinosaurs) or like the flood story talks about. Both highly destructive transitions that paved the way for a whole new world to emerge. Even Jesus in giving his apocalyptic prophesies said that time would be like it was in the days of Noah.

      On the one hand, you seem to say this will be nothing but a welcome correction, which will present a buying opportunity at the end of the dip. On the other, you say that everyone had better be prepared to sustain themselves through some very hard times (as though this is going to last for a long time) for which there are signs all around us that is “at this very moment a storm” that “Is tearing apart people’s lives.” The tearing apart of people’s lives hardly sounds like just a buying opportunity in the stock market to look forward to.

      Even this part leaves me puzzled: “I do expect a retest to May lows possibly even April lows. But we may not get it. We just may move on up to a blow off top now. Either way, before a real collapse, I do expect a blow off top. An exponential rise that at the end of it’s rise will have the janitors and fruit pickers talking about the markets. Then shall the end come.”

      Please show me a time on any graph of the stock market where we have seen an exponential rise as steep and prolonged as the past six months of the Trump rally. I’ve looked back through graphs over all the years of the stock market and have not seen a rise this sharp that continued to remain this sharp for as long as the Trump rally did. How much more euphoria can you possibly expect than more euphoria than has ever been seen in the history of the stock market. I also look at all major tops before major crashes, and none of them just instantly blew off and crashed. Usually the crash came after a short term of the top rounding off or after after a choppy downward turn that suddenly went off the cliff a month or two later.

      Look at the last last thirty years of the Dow:

      http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=DJIA&insttype=Index&freq=2&show=&time=20

      The sharp rise in the last six months is more euphoric and more protracted than any other rise on the graph. And look at all the points where the market has crashed. Never did it just immediately plunge over the cliff. Instead, we see it rounding off or flattening out, just as it has in the past couple of months, usually rounding downward for a period of months or even a year and then finally taking the big plunge. So, you’ll never find more euphoria in the past than is currently already built into the market. While the market could take another leg up, it’s already the largest burst of irrational exuberance in history, so there is certainly no need for another burst before the big crash.

      Even the ramp up to the dot-com crash, where Greenspan coined the term “irrational exuberance” was not as steep or as protracted as the Trump Rally, and the Trump Rally was clearly built on hot air because it is based entirely on the hope that Trump’s big plans will come into effect, and so far every one of his major plans (his big campaign promises) that he’s tried to enact has failed, either in congress or in the courts. More than likely, we are seeing the top in the current three months of bouncing along sideways. (We’re just treading water now, waiting for the big crash to happen.)

      –David

      • Don_in_Odessa

        As for Noah: The context of the paragraph was preparing.Preparing for what? As is proper in paragraph construction the last sentence of the paragraph sums it up i.e. “At this very moment a storm is tearing apart peoples lives. Be it man made or nature, a storm, our way comes.” Therefore that was the only relationship the reference to Noah the reader should have drawn. It’s just proper grammatical construction.

        As for exponential rises we haven’t even come close to historic precedence. Take a look at the yearly and quarterly charts of the S&P below. They go all the way back to 1928.

        Well David Disqus is not allowing me to post an image in the comment. So take a look at the yearly and quarterly charts of the S&P on your own. You will see in comparison we have a long way to go to match historic rises and crashes.

        • Actually, proper sentence structure in a paragraph has always been to put the theme sentence at the very beginning. So, I’m well aware of grammatical structure, thanks. I’m just confused by your argument.

          “As for end of worlds and the like I did not say “the end of the world.” What I did say was “the inevitable demise of the civilized financial world””

          You said: “End of the civilized world?” Which I would naturally take to mean the end of civilization as we know it. But I guess your point was to make a contrast between end of the financial world and end of civilization, not to suggest that the end of the financial world might also be the end of civilization. At any rate, I have never thought the end of civilization is coming. My arguments have all been that the end of the financial world is coming.

          That is not a world of indefinite “corrections and near collapses as “long as they keep agreeing to wipe each other’s backside.” When the end of the financial world comes, it comes because the whole concept of endlessly “agreeing to wipe each other’s backside” is untenable in the first place. They have seen nothing but diminishing returns for all their efforts at QE and interest adjustment. They are out of dry powder as David Stockman loves to repeatedly say. Their old games are ceasing to work, and they know it. The law of diminishing returns, like entropy, trumps everything.

          They are either stupid and don’t see that reality, which any economist should understand, as it is Econ 101, or they are conspiring to bring an end that will look like they tried to do all they could and failed. Either way, doesn’t matter, except that the latter means they need to go to jail at the end of the day. Doesn’t matter because either way leads to the same conclusion, which is that the present monetary system is on the brink of failure. For me and most people, the results are the same, whether by conspiratorial design or by abject ignorance of basic economics, but it is the ignorance of basic economics that proves their present route is a path to failure. Those understanding basic economics know this path ends in disaster, whether by ignorance or design. We don’t need to figure out if it is a conspiracy to see the bridge is out up ahead on the particular track we’re on. Don’t need to know whether that is become someone blew the bridge up. Point is, there is no bridge there.

          I will in another article prove that the present rise in the stock market is far greater and far faster than any seen in history. Of course, the rise in cash (liquidity) is far greater and far faster than at any time, too, which is why the market has been so irrationally exuberant. It’s built on all that free money, but with the free money being taken away, it is inevitable that the hyper-inflated stock market, which saw its most irrational rise in history right after the election, will go down. There has never been a rise in the market remotely like the Trump rally. It’s been the longest most insanely steep rise ever, and that’s easily provable by historic charts. So, how much more irrational exuberance do you want before it’s OK for the top to blow off? Why do you need another run up when you’ve already seen the most unusual and greatest irrational exuberance in history? It is, of course, possible that irrational exuberance will go even higher, but no reason to think it needs to when it has already exceeding anything seen in the past.

          I guess where we are differing is that you are measuring length of rise as in the time over which it occurred. I am measuring length as in the height which it attained during a steep period of rise. The shorter the time in which it has done that, the more irrational the rise. I’ve never been one to believe in chart theories as a way of predicting what is going to happen next … as in the market has to have four significant tops before it crashes. What I do believe is that irrationality precedes a crash because irrationality causes the blindness that keeps people from seeing the crash coming. So, if a market has the steepest, longest (in elevation gain, not days or months) all based on political promises that face extreme challenges in ever becoming reality, that speaks of a phenomenal level of irrationality and euphoria among the speculators that are sending the market up, which means the market is more tipsy than anything we’ve ever seen.

          Add to that the fact that many people who are looking at that are saying, “We still need to see some sign of irrational exuberance before this bull market crashes,” and you have the most amazing blindness in the history of the stock market. Exuberance has never gone higher, more quickly on such faint and unlikely hopes than it has now … at a time when other major economic indicators mean that a rational market should be falling. You point out that fundamentals don’t count in assessing this market; but that was my point. This market has no grasp or concern whatsoever about fundamentals because it is more irrational and more exuberant than any market we’ve ever seen. So, I’m not suggesting it will fall because of how it responds to fundamentals, but exactly the opposite. It will crash severely because it has no grasp of fundamentals whatsoever. And fundamentals still fundamentally matter because they are reality. Those who are out of touch with reality, get slammed by it because it happens whether they believe in it or not.

          So, as auto sales tank, home sales start to slide, the reality of wage growth fails to materialize, commodity prices drop because China cannot sustain its outlandish construction spree, that reality will eventually crush the exuberance out of the market by taking companies deep into the red. We’re seeing it now with automakers, and may be about to see it in housing (too early to know for sure if this is a change in trend or a one-off). That reality is crashing immediately after the fastest rise of irrational exuberance in market history is what makes me think this summer is when things begin to seriously fall apart for the economy in general and the stock market. The market often makes a few drops down and partial recoveries before it completely falls off any major cliff, so I don’t know exactly how and when it will fall apart, but the chemistry for such a crash is all in play as of the start of summer, which is when I thought the chemistry would all be in the condition of peak irrationality meeting a badly falling economy.

          • Don_in_Odessa

            Right off the bat you are wrong again. Please note I said civilized FINANCIAL world. Big difference. I don’t have time today to read the rest of what you have written in reply.

            Sheesh!!! I am so damned tired of people reading into what others say something they did not say. Either you are behaving like an idiot on purpose to get a rise out of me or you are deliberately obfuscating my argument. Either way I have lost my patience for the subject today.

            • Please go back and read what you wrote, but here let me help you:

              “The collusion of central banksters around the world has prevented what has been touted by the doomsters AS THE INEVITABLE DEMISE OF THE CIVILIZED FINANCIAL WORLD since before the turn of the century. As long as they keep agreeing to wipe each other’s backside, corrections and near collapses are our future. END OF THE CIVILIZED WORLD?”

              You went from “civilized FINANCIAL world” to simply “CIVILIZED WORLD.” You wrote both. What I was trying to point out in my last comment was that I MISUNDERSTOOD this to mean you were suggesting the demise of the civilized FINANCIAL world might lead to the end of the civilized world,” BUT that I now see you were meaning that latter as a contrast to the former, not as suggesting it might be the natural outgrowth.

              Don’t worry about reading the rest of my reply. You’ve spawned another article in order to lay out my points that you missed, and all of the comment above will be in that article. In short, you are right that the market will not respond to fundamentals — does not care about them — but that was my point that you seem to be arguing about. It WILL NOT respond to fundamentals because it is irrational in the greatest extreme we’ve ever seen. But that won’t stop the fundamentals from crashing in on its denial. Reality does that, and the longer the market holds out against it, the worse the crash is.

              We are now at a point where reality, which doesn’t care at all about charts, is crashing up against that denial in a very hard way that I think is about to get a lot harder.

            • Don_in_Odessa

              OMG! You are right about what I wrote. Please accept my sincere apology. My respect as well as you handled my error with grace and high character.

              I just read your email to me as well about the charts I sent to you. I honestly disagree that this is the longest uninterrupted bull market in History. I measure the point by higher highes concurrent with higher lows. When that rule is violated the count begins anew, whether daily, weekly, monthly, quarterly or yearly; Your claim does not pass that test during any of these time periods. However, using a different and perhaps more accurate measure lets check another source you may trust more than me.

              According to the Christian Science Monitor on a percentage basis the five largest bull markets are as follows:

              2009 through the end of 2013, 173 percent.
              1942-46 – 158 percent gain.
              1982-87 – 229 percent gain.
              1949-56 – 266 percent gain.
              1987-2000 – 582 percent gain.

              http://www.csmonitor.com/Business/2013/0504/Bull-markets-how-this-one-stacks-up-in-history/1987-2000-582-percent-gainz

            • Hi Don,

              Sincere apology sincerely accepted. (Some of the best friendships start out that way.)

              This is definitely not the longest bull market in history. What I said was the Trump Rally was the longest, steepest period of irrational exuberance in history. Many bull markets are either not at all irrational or not at all exuberant. To me the latter term means the market is exhibiting a much higher than normal degree of enthusiasm.

              So, if you look at periods where the market was unusually exuberant (rising much more steeply than most bull markets), the Trump Rally is the longest such run ever. And it was irrational in that the reasons for its rise were nothing but the most distant hopes of economic change, challenged by a political reality (most divided country politically that we’ve ever been) that means even those distant hopes have a high chance of not happening.

              The market rose more steeply than ever over the past six months on hopes that, at best, are a year away, even according to those who are pushing for them, and those hopes may not materialize even a year away. Meanwhile, plenty of bad economic news is mounting all around the market right now while the Fed is planning on hiking interest rates, and the market is completely ignoring all of that — so doubly irrational.

              Double steep combined with double irrationality for a longer run of that kind than we’ve ever seen at the same time that the market is priced about as rich in view of actual earnings as we’ve ever seen and richer in terms of total market value than we’ve ever seen. All making it this most insane bull market ever and, therefore, at high risk of now experiencing the worst crash ever. And, yet, the professional market bulls (the investment analysts) say, “Where’s the irrational exuberance? We haven’t seen any of that yet. We can’t have a huge crash without that!”

              Doesn’t mean, of course, that it will all end up in a heap, but it sure is poised for the biggest wipeout in history.

              I think of Ben Bernanke in 2008, standing in the middle of the second greatest recession in US history telling congress, “So far, there is not a recession anywhere in site!” Then, once the first quarter GDP numbers were revised and the second quarter numbers came in, we all found out that he (and we) were in the middle of a recession that began at the end of 2007. It was something I had no doubt we were in, but the nation’s top expert couldn’t see it to save his soul.

              In November or December of 2007, I was absolutely certain the housing market was entering its worst imaginable crash, yet Ben Break-the-banky was still convinced it would keep rising in June or July of 2008. It was November or December of 2007 (old man memory losing site of the exact time now) that I told my wife to push her family for all she was worth to sell the small estate they had been holding on to immediately, even if it made them really angry with her — to do all she could to force their hand because they’d be REALLY THANKFUL they did within just a matter of months. (They had been holding on to it because the housing market was rising so exuberantly that just sitting on it, rather than selling it and dividing it up, was the best investment they all could hope for.) I told her that housing was on a breaker that was going to destroy the banking industry on a global scale within months! I convinced her that it would be the worst thing WE had ever seen (having not seen the Great Depression). Half a year later, Bear Sterns went down. Three months or so after that Lehman Bros. died, and the rest is history; but ol’ Ben Bernanke was singing of eternal glory days for housing all the way up to a month before Bear Sterns died.

              –David

            • Don_in_Odessa

              P.S. I agree with the time line you mentioned in the email on the potential for the next major decline. Could be the start of a multiyear major and unprecedented depression. The Fourth Turning guys, Armstrong and others with similar accuracy are predicting bad stuff ahead for the near future. While timing is hard for anyone, my work leads me to expect any time between now and mid next year. I am still looking for a more extreme blow off top than what we are presently in though. I’m still trading my meager account, but I am also buying insurance with options.

  • Kim

    Not trying to be too picky but Jesus said it first. Lincoln merely quoted him, and for some odd reason gets credit for it.

    OK – back to reading most excellent article.

    • You’re welcome, Kim. The reason I only mentioned Lincoln, who was, as you say, quoting Jesus is that Jesus said it about demonic possession and was referring to Satan’s “house,” while Lincoln was actually using Jesus’ expression to talk about government. We probably haven’t seen such a divided government since the civil war nor, especially, such a sharply divided Republican/Whig party, so I wanted to leave an implication that we may be on the brink of such political chaos again.

  • Chris P

    The only real trade out there that 99% of the zombies trade is but the dip. There is no real thought by most put into how or why they trade and you can see why. As you say the trade will get crowded at some point it’s just when that point comes. Good read Dave

    • Thanks, Chris. I agree. The fact that there is no rationality in the market anymore, due largely to the Fed’s manipulation of the market and its indefinite capacity to create money but also due to the algorithms that seem to be largely built on responding to indications of where the Fed is going, makes trying to predict the market irrational from the outset. So, my own attempts are irrational, except that …

      1) I am not looking at when the market will RESPOND to economic conditions (there is no rationality in its responses to anything) but how long it appears it will take before economic conditions become so bad that the institutions who are propping stocks up will no longer have enough strength to do so. I’m not sure how much strength they have, but if GDP keeps falling, housing keeps falling, and auto sales keep falling while bankruptcies are tripling, that’s going to take massively more propping than what they’ve been kicking in so far. If the present rate of decline continues, we’ll be there by the end of the year but should start to see major cracks about now, which I think is what we ARE seeing.

      2) How much do they really want to save it? Given the way the entire world is pushing toward a digital global currency (including numerous outspoken and influential economists), I have to think that kind of building momentum in thought is more than just the average of everyone’s thinking. Globalist central bankers must be driving it. I’m not sure when central banks plan to initiate the actual transition, but I cannot escape the thought that Trump looks like the perfect scapegoat for that time when they will have to let the current monetary system crash in order to sell people on the need to change. (Just as 9/11 conditioned lots of people to let their small-government Republicans greatly expand the size of government and its intrusiveness into our private lives (the very reason we were supposed to hate big government) because safety suddenly seemed more important than protecting those liberties that others long ago died for.)

      I’ve been saying economic collapse will happen sometime between the start of summer and the start of 2018, but i have been leaning toward some big action at the start of summer. Part of my thinking there is that the globalists (if they cannot gain full control over Trump) would have to hold things going for about that long in order to lay the blame fully at his feet. If it came too soon in his administration it would be hard to say that it didn’t carry over from Obama. I think it will take a half a year more for the housing crash to get under way enough to damage banks, but the auto crash I think will come sooner. While I generally avoid conspiracy thinking, I have not been able to escape thinking that both bankers and governments want digital currency in order to gain more control over the economies that they are clearly already obsessed with controlling.

  • GonzoTheBurner

    The conditions that have hurt consumers over the last few years are going to hurt the sellers this summer, maybe well into the Christmas shopping season. Summer in most countries is when people get a little loose with their money, go on vacation and to events, buy knick knacks at gift shops and generally a little more likely to buy crap that they don’t actually need. Making memories and all that jazz. I imagine most summer BBQs are going to have watered down condiments, discount hotdawgs, thrift bakery buns & plane paper plates and napkins. When are the parasites going to learn that squeezing the masses for short term gains causes long term losses. Dave, got any tips for those who haven’t quite got in the lifeboats though the ship is already taking on water? I think they could use them.

    • It will be starting soon. In fact, I think the above items are the start of it all. (Not the cause but the first major pieces of the economy that are starting to shift because of the structural flaws underneath.)

      As to practical advise on where to find a lifeboat or vest; 1) Faith in God. (We need someone bigger than ourselves to weather what is coming. 2) Real assets, such as property, gold, collectors coins, etc. They may crash but you have something left at the end that will eventually recoup some value (so long as you didn’t buy it now while the value is overrated). Practical assets (land would be included there, too). 3) Reduced liabilities (such as paid-off mortgages). (It would be nice when the banks collapse if they wiped out your liabilities when they wipe out your savings, but they never seem to do that.)

      I’ve put our farm on the market at a dream price that I will be happy if I can get it, even if things don’t crash, but have done so because, if things do crash, it would be nice to be in the position of having sold while property was at its peak in order to buy later on when it has devalued by 40% or more. (Will rent in the meantime.) I love the property, however, too much to let it go at less than a dream price just to try to realize a gain if the market falls as I think it will.

      (Note these are the kinds of steps I can think of that I’d take, but I’m not recommending them for everyone. They are ideas, and it is fully your responsibility to evaluate the perils in any kind of wealth-preservation idea to see what works for you and to know what the risk are.

      There is no escaping risk, and there is no avoiding all the pain from the kind of collapse that will come. So, you do your best and know that you are almost certain to have some losses, but hope that you have enough diversity to do O.K. or even prosper from the event in other ways.

      Others please feel free to share your ideas here. If I get enough ideas, I may pull them together into an article.

      • GonzoTheBurner

        Nice. I would just say that if you plan on be self sustaining, you need to be doing it now. Gardening is hard. Had a hail storm for ten minutes that destroyed my red kidney beans (little pea sized hail ripped and shredded the broad leaves). It is harder than it looks growing and raising your own food. Start now, even if you start small!

  • B Wilds

    Even the most bullish traders should have a difficult time ignoring the problems you point out. Time has a way of revealing certain realities but does so at its own choosing. The economy is far from a well-oiled and designed machine and in the end, we may find that it is not really completely under the control of those who have been placed in the driver’s seat.

    In a world where central banks have become so deeply involved in manipulating and distorting markets we find true price discovery no longer exist. The question remains how best to prepare for a economic meltdown. Expect both luck and caution to play a big role on our individual fortunes as we move through the financially violent period before us. More on this subject below.

    http://brucewilds.blogspot.com/2017/05/catalyst-of-our-economic-demise-yet-to.html

    • I think that is exactly the way it will all go down. The economy will crash because of its own structural failures. These things I’ve listed are just the environmental forces that are currently pushing against the rickety structure and growing in severity.

  • Auldenemy

    Apparently one major auto lender was only checking 8% of new loan applications, meaning that many people who lied about their income merrily got to drive their new Chevy out of dealers show rooms (leasing a car they don’t actually have the means to pay up on for the duration of the deal). That is exactly a repeat of what was happening prior to the 2008 financial crash