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Halloween Madness Tears Stock Market to Shreds

Posted October 31, 2020 By David Haggith
Federal Reserve hacking its own recovery to death

Investors will start to realize the economy is not recovering in August, I said. As result, the stock market will break sometime in August or September, I said. It will likely experience an even bigger plunge as an October surprise, I said, because something about October loves a Halloweenish surprise for stocks.

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The Upbeat Downbeat on Housing and Commercial Real Estate

Posted October 14, 2020 By David Haggith
Falling housing prices may cause Housing Market Crash 2.0.

I mentioned in a recent article that the weird thing about this recession is that it is the only one in which personal income has gone up during a recession. That, of course, is because of government assistance, which is making it so we don’t have to feel the pain of a recession that the government, itself, caused — through its massive debt, tax breaks for the 1%, reliance on the Fed to solve government’s problems, and most currently through its forced economic shutdown as a response to COVID-19 — something that even the WHO now says was failed policy that should never have happened — even though they helped make sure it did happen!

All of that is weird stuff, but another really weird thing about this recession is that the housing market took off as though we had just entered the best of times this summer. Who would have guessed: 32-million people out of work, and we have a housing market melt-up? Of all the unlikely times for a new bubble to form! I didn’t read anyone who saw that coming. Neither did I see it coming, but it added brilliance to the summer that has continued burning all the way into October.

If you are looking to buy a house, as many are, that silver ray has a dark lining because it is driving up your cost, making it harder for you to enter the market. We are seeing rampant inflation in housing prices outside of major cities. The housing market is exploding into a new balloon (far too big to call a bubble) because there is severe shortage in available housing right as demand soared and interest hit an all-time low.

The mass-migration problem

Oh, there is plenty of housing supply opening up in the major cities because no one wants to live there anymore. Urbanites now want to migrate to the country or to smaller towns to escape riots and COVID concentration camps. COVID created a sudden reversal (perhaps just temporarILy) of a migration pattern from country to city that had endured for decades.

Of course, what makes “the country” the country is the lack of housing. Likewise with what makes small towns small. That means the desired new homes have to be built from scratch. So, we’re in a rush to fill in those beautiful fields and forests with new housing developments, turning them into rapidly expanding suburbs under that bizarrely outmoded idea that you can actually move swarms of people into the country and still have it be country.

Californians in particular are doing what they always do in times like this — rushing to transform small towns outside of California into expensive larger towns that run like Californians know towns ought to run (so they can do it all again fifty years from now when they, again, flee what they recreated). Once there, they will establish the same liberal polices of teaching racial hatred and police hatred by endlessly reminding everyone of why they should hate each other along with encouragement of riots as a form of free speech that have turned their cities into war zones, forever oblivious to the fact that hatred is what it is partly because they do all they can to enable riots while throwing fuel on smoldering animosities.

This huge migration shift has driven prices up as much as 5% per month and the cost of building materials in some areas up as much as 300% over the course of just a couple of months, particularly lumber, now that California is burning down all of its forests (due to years in which environmentalists saw to it that open slash burns were no longer allowed in national forests — or any kind of forest — so we left lots of debris on the floor to become tinder because burning slash in piles does not accomplish the same cleansing and due to reducing logging).

In some places builders and/or construction workers are in short supply. All of that is good for the economy as housing has more power to drive an economy and create new jobs than just about anything.

With too few houses in the country (because it is country), we are even back to bidding wars over existing homes in some rural areas and smaller towns, all enabled by record low mortgage interest that the Fed has established.

However …

A housing collapse within the building spree

Oddly, while June and July saw a record rebound in new housing starts, August saw somewhat of a collapse:

While that seems weird on the face of things, given how enthusiastic builders are feeling right now and how prices are soaring, the explanation for it is fairly straightforward:

Despite Record Builder Sentiment, Housing Starts Collapse Led By Rental Unit Crash

While single-family home starts rose, the rental units crashed in August…

4.1% jump in single family units from 981K to 1021M.

25.4% drop in multi-family units from 503K to 375K.

Zero Hedge

Who wants to live in multi-family housing when they are trying to escape cities and COVID? So the increase in the construction of new single-family homes in the country was more than offset by the decrease in multi-family housing units in the cities. The same transition could be seen in permits issued.

Another oddity is that, in spite of the barrage of news about rabid demand and bidding wars starting back up in housing, it would appear from September sentiment gauges that maybe builders (and realtors) were more excited about it than actual buyers:

Buyer sentiment may be falling because prices are rising so fast, and inventory is so low, putting the desired homes out of reach for many. (That is a guess. I don’t really know quite how to square that circle because falling sentiment would not seem to drive rising sales and rising prices.) Both the drop in sentiment and the drop in multi-family housing could also be indicative that the market is already starting to turn and will turn when I first said it would.

I have maintained since the start fo the Coronacrisis that we will not see a decline in housing prices until November. Before all the government intervention, I did expect a decline to start around November. However, with the forbearance laws that went in place and all the government rescue packages that are increasing most unemployed people’s income during this recession, it’s possible a drop in prices will not come at all. That depends on whether stimulus fails to get approval and whether forbearance laws are renewed.

If the government support subsides, everything, including the housing market, will collapse rapidly over the late fall and winter. If the economy degenerates as quickly as I believe it will during the fall and winter, even additional stimulus still may not be enough to keep the housing balloon floating.

I found it easy to predict a housing bubble collapse in 2007 for 2008. Whether the market will collapse soon this time around is really hard to predict because of the scale of competing forces and efforts to prevent such a thing already I play — job losses v. greater income for the unemployed, housing prices rising v. interest falling, rising numbers of homes technically in default v. forbearance preventing legal default, stimulus likely to increase after the election v. the likely civil wars that will break out after the election if the results are close enough to be contestable, fueling even greater desire to get out of the urban battlegrounds.

Commercial real estate is another matter entirely and is easily predictable

There is no question where the commercial monster is headed for the next few years. In war-torn NYC, commercial real-estate sales plummeted 54% citywide to the lowest since 2015 when records began. Not surprisingly,

Apartment buildings suffered the biggest drops in prices, at 50% on average. Offices and hotels saw decreases of 28% and 37%, respectively, while prices for retail properties were flat.

Zero Hedge

And why wouldn’t hotels crash like an elevator? Even the famous Hilton of Times Square announced in September it will close its doors on a “permanent” basis. “Two-Thirds Of US Hotels Say They Won’t Last Six More Month At Current Occupancy Levels.”

Malls were struggling all over the nation for a couple of years under the Retail Apocalypse I’ve been covering, and COVID has kicked mall owners in the groin; so, mall closures are speeding up everywhere. Offices are not needed as much due to people working remotely. Forbearance was making things worse for mall and office high-rise owners by making it impossible for landlords to evict commercial tenants, though the tenants certainly needed that grace. At some point all of this collapses into a heap of rubble.

As Zero Hedge just noted, malls die slowly until they die quickly. The same can be said of shopping centers and probably of office buildings that have fallen out of demand. They close store by store or office by office until they get below a certain critical mass, where they are no longer feasible with no hope in site because their problems are mostly not of their own creating right now, so then they just close entirely.

When will the house of cards fall?

There is plenty that can bring this whole real-estate structure down in a hurry, especially now that we are in a housing market melt-up that can only find comparison in the year 2007, BUT it all depends on how long it takes before the government can’t find the political will for continued stimulus or can’t take on additional debt at the speed of light without damaging its credit rating or ends forbearance measures because they are killing landlords or killing banks.

Commercial real estate is already falling and is in such a world of hurt that it has zero chance of getting better anytime soon. The same thing is happening in nations all over the world of course because many nations already had badly flawed economies before the Covidcrisis hit and had banks that were already seeing lower results for higher stimulus efforts.

The foundation for the housing market structure in the US is precarious with plenty of explosives already attached to the support columns, but something is going to have to detonate it to cause it to collapse into its own basement. Until then, housing prices may keep on soaring right into the recession … but probably not out the other side.

The Path by Which We Got Here

Posted September 22, 2020 By David Haggith
Central banks are cause of inverted yield curve recessions

It wasn’t just COVID that got us down the road to ruin. Because many think we are in what looks like a post-apocalyptic world of rubble only because of COVID or because of Trump, I decided now would be a good time to summarize how predictably the Fed’s Great Recovery and Great Rewind got us here.

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Stocks are Falling into Fall

Posted September 18, 2020 By David Haggith

All three major stock-market indices completed three consecutive weeks of falling today as we head into fall next week. The NASDAQ, as you see in the opening graph, has set up a clear trend of perfectly aligned closings this week.

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S&P 500 Crash Target 2000

This graph shows where my mind goes every time I ask myself how far the S&P 500 is likely to fall before it finds a solid bottom.

As you know, I don’t make predictions based on charts, but clearly there is intense convergence of longterm support around the 2,000 level and strong indication of a subliminal desire in the market to keep plumbing the bottom to find that depth.

Dave-Portnoy daydream traders notwithstanding, this is where the market’s undertow wants to pull it. I’m not saying it will get there, but that is the level at which the stock market would finally find substantial technical support and possibly economic convergence. The economy, at present, would strongly support stocks at that level … unless the economy falls further; then even that level could look overvalued.

Just one more chart

If the economy goes lower (more unemployment than where we now rest and continued decline in overall GDP (not GDP growth rate), here’s the next lower level and likely ultimate rock bottom. As you can see, the market’s longterm trend PRE-Fed rigging would support a slightly lower level as the maximum return to trend.

The strong support reflected in the first graph will probably prevent that from happening; but this would be the worse-case scenario, provided the earth doesn’t get hit by some greater natural castastrophe than what we have already seen. At the 1,500 level there is tremendous support, even without Fed interventions.

Of course, there is also the imaginary line one could draw straight across the bottoms of the last two recessions (S&P about 800); but we’ll leave that worst-case scenario for something like a major asteroid impact because those levels were established by where the market found proximate support from its PRE-FED trend line, busting slightly slightly below the line the last time but then recovering to bounce along that trend line for the next two years.

That’s all. Just a couple of snapshots this time of the possible paths ahead to keep in the back of your mind, which is where I keep them.

Elon Musk Portrait Painting Collage by Danor Shtruzman (https://creativecommons.org/licenses/by-sa/4.0)
Elon Musk Portrait Painting Collage | Danor Shtruzman / CC BY-SA

Such stuff as dreams are made on

Well, I don’t keep them in the back of your mind, but in the back of mine. I’ll limit my intrusion into the storage space of your mind to this space here on the Great Recession Blog. Don’t count on your government, however, to limit its intrusion.

Elon Musk, the demi-god at whose feet Dave Portnoy worships, after all, is already perfecting a brain-chip implant to “help us compete” with artificial intelligence in the sublime future that lies ahead. If that happens, who knows what coding the government will slip in or how it will manage to hack your artificially stimulated brain, even if Elon doesn’t give it a back door in — a whole new Fed frontier!

Maybe Elon is already testing the chip on himself like a mad scientist; in which case, bugs in the beta version would explain some of his bizarre misfires. (You can almost see the sparks and smoke of his fried genius brain inside his eyeballs.) Ah, what stuff the future holds for future themes on The Great Recession Blog — such stuff as nightmares are made on.

With a little vaccination digital identification patch, compliments of Bill Gates, who knows where the American oligarchs can take us? I hope to remain able to be here and shine some intrusive light into those dark holes the future holds.

Bill Gates has dollar signs in his eyes as he envisions a cashless society
Source: Surian Soosay / CC BY (https://creativecommons.org/licenses/by/2.0) (Modified with dollars signs over Skype logo)

Stay posted by keeping me posted

Don’t forget to consider supporting your intrepid and intentionally boisterous prognosticator. My next article will be another Patron Post on central-bank trajectories … unless, of course, this weird year of 2020, where my foresight seems to have been sharp so far, throws us another wild card.

Patron Posts, by the way, are not intended as a paid subscription — just a thank-you for your support that offers a wider-picture view of our trajectory. That support is what makes all the content here possible, as it is how I measure whether the content is TRULY worth something to people in their own estimation.

But, whether I can continue, is up to you, as dark times also press me to find and focus on avenues of writing that help offset the losses of unemployment for which I have so far seen zero benefits since my COVID layoff in May (March and April having been covered by my employer). Employment Security told me my article writing (though it is nothing but a small sideline of income) makes me self-employed (because of the rare times I got paid for my articles from one site I was writing for this past spring when unemployment hit).

On that basis, they determined I am unqualified because I’m also not a contract worker. Writing articles, as it turns out so far (though I’ve won an appeal but not seen the results of that either), has cost me far more than what I could have made by doing nothing at all and resting on unemployment.

That’s the cost of being honest in what you report to Employment Security, even when you know they won’t be able to comprehend the nuances. I anticipated it would play out that way but reported honestly anyway.

All the while, I have soldiered on with the writing that cost me those unemployment benefits (including the government’s $600 per week augmentation of UI benefits, more than I make per month off of contributions). I do so because the support of a few says this is meaningful to some (where it actually counts for them because it costs them something). That is meaningful at a heart level to me, too. One person has even just added some really strong support. So, thank you for that as it came just in time!

Support overall has fallen off to where it is less now than what it once was pre-COVID. Most who have discontinued have said they were discontinuing support because their financial situation has changed. I can certainly understand that. Mine has, too.

A few have said it is because Patron Posts don’t come often enough.; but, as I’ve said, Patron Posts are meant as a thank-you, not a paid prescription, because my goal is to make as much information (and hopefully insight) available to as many as possible during these dark times. What you are really paying for with that support is to keep ALL the content on this site coming because the ad revenue truly only covers the cost of hosting the site, backing up the site in a separate storage facility, and registering the domain each year so that Patron money can fully go to supporting the writing itself.

I am certain I have also lost some support for criticizing Trump, but I am, as I’ve always said, “an equal-opportunity critic.” I’m also an equal-opportunity comedian at times, so my lampooning and sarcasm go to all politicians when they do dumb things.

I won’t let the fall-off of support because of party politics determine my content. ONLY my sense of truth determines that. I’d rather quit writing on economics than change how I shine the light of truth and the sharp laser of humor where people don’t want to see; and I’m no more critical of Trump than you are likely to find me of Biden, if he wins.

Biden is just as likely to keep supporting the rich establishment as Trump did when he drained the swamp into the White House basement by putting Goldman Sachs and other banksters in charge of all financial departments of government … again … just as all presidents before him did.

Hence, the big Trump Rally in stocks that, for a fact, did NOTHING for the stagnant economy. The economy remained flat in terms of its growth rate and falling in terms of sales, manufacturing and eventually services, over the full course of time in which the stock market soared, and then it blew to pieces when the COVID comet hit earth.

Hopefully Employment Security eventually submits to the results of my August 5 appeal hearing. So far … still waiting. Your support is what keeps the light on. (So much for one of my rare pleas. Even National Public Radio makes such pleas more often than I do and takes a lot longer to make them!)

Shining the bright light of truth into a blurry world.

Stock Market’s Caged Bear about to Rattle Himself Loose!

Posted September 1, 2020 By David Haggith
Is the US stock market going to crash in 2017? [By Philip Timms [Public domain], via Wikimedia Commons]

I’ve been saying the stock market will take a turn for the worst sometime between mid-August and October. Numerous market metrics now show a market that looks ready to turn over. The bear may soon be back in charge.

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You Could Get Mad as Hell and Just Not Take This Anymore!

Posted July 17, 2020 By David Haggith

It’s time to show you’re Fed up! Get mad as hell! Don’t take this any more! Scorch the earth with your rage! Yell from the rooftops! Stick your head out the window and scream! Fight the economic injustice that serves the rich! Kick political asses, and kick them hard! Don’t just whine, do something about it!

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Photo of breadlines during the Great Depression

The coronavirus pandemic inflicted a “swift and massive shock” that has caused the broadest collapse of the global economy since 1870 despite unprecedented government support, the World Bank said.

“This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges,” said World Bank Group Vice President for Equitable Growth, Finance and Institutions Ceyla Pazarbasioglu….

The depth of the crisis will drive 70 to 100 million people into extreme poverty.

Yahoo! News

The Depression is deep, and the pain is wide.

Yet, the NADAQ is a rocket, attempting to break out of earth’s atmosphere. As I wrote several days ago and reiterated yesterday, saying I’d follow up with greater detail today, this bubble in stocks is the most extreme euphoria ever seen. It will, however, blow when the initial burst of good news from reopening gives way to the reality of all that did not recover after reopening.

That endless lineup of headlines is arriving now.

Since COVID-19 has been rebuilding its claimed outbreaks around the nation in the news, the market has become troubled, knocking the S&P 500 and the Dow back down to that seemingly magical 61% retracement fibonacci line on the charts that really big rallies after really big crashes like to top out at.

As I mentioned yesterday, the Nasdaq has pressed on ahead in a tear. Here is how it looks relative to the rest of the economy (GDP). See if this picture looks stable to you:

And how well did that work out last time?

“Ahh,” you may say, “but this time it is only because then denominator (GDP) has crashed so hard.”

“Nay,” I say.

It is also because, in six days, the five top stocks in the NASDAQ have added half a trillion dollars to the market’s value; and, since the start of this wondrously promising year, they have added 1.6 trillion! All but one of these companies have claimed a heady position in the trillion-dollar-company club.

I’m sure that is not because their businesses have become so much more promising during 2020, earning this appreciation.

As Sven Henrich notes,

That would be a feat during any bull market during times of great growth, but in a historical recession?

Northman Trader

So, while the Dow and the S&P got decapitated the second a new COVID-19 surge took the headlines back, the NASDAQ has continued to be a riot of irrational enthusiasm.

A growing drone of doomsayers

In June, one of the great bubble-blowing predictors of market madness joined with me (unbeknownst to him and for his own reasons of course) in calling out this madness:

Stock-market legend who called 3 financial bubbles says this one is the ‘Real McCoy,’ this is ‘crazy stuff

Jeremy Grantham, co-founder and chief investment strategist at Boston-based money manager Grantham, Mayo, Van Otterloo & Co., [offered] up a stark warning to speculators driving the stock market to new heights amid the greatest pandemic of the past century….

“My confidence is rising quite rapidly that this is, in fact, becoming the fourth, real McCoy, bubble of my investment career. The great bubbles can go on a long time and inflict a lot of pain but at least I think we know now that we’re in one. And the chutzpah involved in having a bubble at a time of massive economic and financial uncertainty is substantial.

Gratham painted a very dire picture of the investment landscape in the U.S., suggesting that rampant trading by out-of-work investors and speculative fervor around bankrupt companies, including car-rental company Hertz Global Holdings Inc. … reflects a market that may be the most bubblicious he’s seen in his storied career.

It is a rally without precedence,” he told CNBC, noting that the run-up comes amid a period in which U.S. economic health is at a low point, with millions of people out of work and bankruptcies likely to continue to rise due to a slowdown in business activity and closures that have come in the aftermath of lockdowns implemented to curb the spread of the deadly COVID-19 pathogen….

Grantham is worth paying attention to due to his prescient calls over the years. He said that stocks were overvalued in 2000 and again in 2007, anticipating those market downturns.

MarketWatch

Grantham was one of the clear-eyed people in 2000 who could look at the graph above and say it was a picture of fabulous nonsense. And this time, the graph says it is worse, and Grantham says it is worse. This time, he’s saying this stock bubble is the greatest and craziest of them all.

Grantham indicated his firm has moved to zero exposure in stocks, and he recommends others make that shift, too. And he said that nearly a month ago! Imagine what he thinks of the nonsense now.

In my last article I described three main aspects of the economy that show massive permanent business closures as a result of the first shutdown. Imagine how much worse it becomes as the knock-on effects that are continue to develop. Then imagine how much worse it becomes if any states that go back into a shutdown.

BUT THE NASDAQ KEEPS CLIMBING thanks to the fabulous five!

Second quarter 2020 came and went like a California wildfire. The economic devastation caused by the government lockdowns was swift, the destruction immense, and the damage lasting. But, nonetheless, in Q2, the major U.S. stock market indices rallied at a record pace.

The Dow booked its best quarter in 33 years. The S&P 500 posted its best performance since 1998. And the NASDAQ had its biggest increase since 1999…jumping 38.85 percent in just three months.

The economy, on the other hand, was severely scorched. Decades of debt had built up like dead wood amongst a forest understory. Then, at the worst possible time, government lockdown orders sparked a match and set it ablaze.

Economic Prism

News of plague turns for the worse

We are now entering the phase I talked about for July where the good news from reopening starts to fade, and we get to see how much didn’t recover. Now we start to find out how much is permanently lost and, by the end of the month, we start to see the bankruptcies and foreclosures lining up like a soup line in front of the courts. Then, in August, the business dominoes start to topple because of the businesses that have already collapsed that other businesses depend on.

In this article, I’m going to start laying out the parade of facts that reveal how much did not recover during reopening. First, here was the news three weeks ago that clipped the heads off the Dow and S&P:

Coronvirus cases rise in at least 9 U.S. states, while Fed’s Powell tells Congress unemployment benefits should be extended. U.S. stocks slumped in the final hour of trade Wednesday to end three days of gains, as investors monitored signs of a revival of the coronavirus pandemic in some U.S. states and China, while still hoping for a quick economic recovery as business activity resumes….

Investors monitored the trajectory of new coronavirus cases, as business activity resumes after lockdowns, along with a fresh outbreak in China, but the focus remains on the path to economic recovery, amid some progress in developing therapeutic drugs and vaccines against COVID-19….

Meanwhile, Arizona, Florida, Oklahoma, Oregon and Texas all saw record increases in new cases on Tuesday, while hospitalizations in Texas, Nevada and Florida hit recordsaccording to Reuters….

China canceled flights to and from Beijing, restricted movement of people, and closed schools in the capital city, after 137 new cases were reported in recent days….

“If COVID-19 were to get so bad this fall that the economy had to totally shut down, stocks would fall and fall hard. But right now, even with a surge, the general consensus is that the economy won’t completely shut down again,” said James Meyer, chief investment officer at Tower Bridge Advisors….

MarketWatch

We all know now how that return of the COVID story went. The news just continued to grow worse. Whether the cases of disease are rightly reported or not, this is the news that has dominated, and it is the news governors will certainly be responding to as they consider whether or not to remain open for business. Some of them have already begun winding back toward closure.

So, good luck with the idea that the economy will not shut down again! It’s already doing it in statewide moves. Trump may rail against it at a national level, but his own health advisors have been saying we need to move back in the direction of closure, and numerous states have shown they are free to ignore Trump on this issue, which they did when they chose the last lockdown against his express will.

So, that’s a heck of a thing to be banking on!

Atlanta Mayor Set To Reimpose Lockdown As Cases Surge, Defying Gov Kemp, Trump

And good luck with the economy not remaining well below where it was in January of this year (already not a good place) for a minimum of two years to come (probably more). Good luck with the arrival of end of the reopening bump in good-news statistics not taking out the stock market’s drug-addled euphoria later this summer if COVID-19’s rising case claims don’t do the job first.

(Note I say claims because a few people in the medical profession have contacted me to tell me they are instructed by the CDC to report all respiratory deaths as COVID-19 unless they are known with certainty to be something else. Yesterday, a reader here told me he heard Ron Paul claim that Texas is now reporting people who merely come into contact with COVID-19 as actual COVID-19 cases. See: “Ron Paul: Is the Texas COVID ‘Spike’ Fake News?” I keep hearing various reasons to question the numbers that are coming through. Still, as I said before, perception is reality in terms of how this story hurts the economy because politicians are acting on it and so are hundreds of millions of customers.)

Failure of the Fed is already being sensed

The stock bubble is already looking ready to burst. The Robinhood crowd, where the reigning self-proclaimed champion Dave Portnoy has proclaimed “stocks rise forever,” may be in for some sticker a shock when prices crash:

The first crack appears in bulls’ thesis that the stock market will rise no matter what.

Money printing by the Federal Reserve has propelled stocks for more than a decade. But that effect may soon wear off….

Until recently, the Fed has been unreasonably intransigent in that it will continue money printing even if the economy became strong and there was no need for it…. When the Fed announced it will buy individual bonds, the stock market loved it….

Fed Chairman Jerome Powell is a smart man. The way he came across in his press conference after the FOMC policy decision last week was troubling in that he was going to do whatever it took without regard to consequences and limits. Why would a smart man like Powell show such intransigence?…

Powell is being clever in exhibiting intransigence because he wants everybody to believe that the Fed is all in and there are no limits to what the Fed can do….

[However, looking deeper into Powell’s words:]

“We’re not actually increasing the dollar volume of things we’re buying. We’re just shifting away from ETFs toward this other form of index….”

The crack in the bulls’ thesis is that contrary to their belief, the Fed is becoming measured and may have difficulty expanding its balance sheet beyond $10 trillion. In plain English, unlimited money printing is highly unlikely…..

MarketWatch

Why is Powell talking big but then showing some signs of not going there? Maybe he’s offering empty reassurance as the Fed actually backs off on its monetary support of the market’s rise. He might talk big and back away if he knows the Fed is at the point where the distortions it blows into being are worse than what it seeks to cure.

Right now, the Fed’s financial money-printing in support of the market looks like the red line below:

Zero Hedge

The Fed knows it has pumped the stock market into the highest bubble in history, and it is trying to taper that because the risk gets worse the bigger the bubble gets. However, economic damage that is still building will likely press it back to more money creation. In the meantime, we know now from past experience, not just from my saying it would prove to be so, that the Fed cannot taper its balance sheet without crashing the market it has rigged up. We see in the graph the S&P has already responded by settling back down (same for the Dow as shown yesterday), and so the market is tipping.

With no further adieu, here is the rapidly approaching lineup of bad news the market is ignoring. Here is the bad news that is now relentlessly drumming louder and louder until it will become a deafening roar the market cannot ignore. (And the Fed is backing down right as the news arrives, though its arrival will push the Fed back to running the money pumps, which may, if that happens, buy the market a little more time … like until September; but right now, I’d say August is looking good for the start of a crash.)

The drumbeats of the Epocalypse

A parade of headlines has been marching into town during the past couple of weeks, telling a story of death and destruction due to a plague hitting a world burdened under a crushing load of debt, papered over with optimistic accounting gimmicks that emit a sweet stink something like rose water poured over decaying meat.

How can anyone not hear the following noisy parade coming?

The results were predictable to everyone but the experts. Supply chain disruptions followed by retail disruptions, followed by declining sales, followed by disappearing cash flow, followed by layoffs, followed by business closures, followed by shrinking tax receipts, followed by unserviceable public and private debt, followed by mass bankruptcies, followed by riots, followed by full societal breakdown.

Economic Prism

Now, the parade of facts has arrived.

Consumer spending fails to recover:

We can see from Chase that consumer spending via credit card improved during reopening, but now appears to have flatlined about 10% lower than it was last year:

Airline recovery take-off sputtered back toward ground:

Top line is number of passengers. Bottom line is revenue.
Wolf Street

Flights are still down about 70% and that is at reduced ticket prices (as evidenced by revenue falling more percentage-wise than than number of passengers booked). International flights are, of course, even more pathetic:

That’s as far off the ground as they got. Looks like a plane wreck off the end of the runway to me.

United Airlines announced that 36,000 employees in the US, or 45% of its US workforce, could face “involuntary furloughs” on or after October 1. That’s the day after the restrictions attached to the $25 billion in payroll aid under the CARES act expire….

The “involuntary furloughs” would include up to 15,000 flight attendants, 11,000 customer service and gate agents, 5,500 maintenance workers, and 2,250 pilots. Another 1,300 management and support staff will be laid off on October 1

Wolf Street

Airbus To Cut 15,000 Jobs As No Recovery Expected Until 2023

Zero Hedge

Airbnb CEO and co-founder Brian Chesky said the global travel and tourism industry might never fully recover from the coronavirus pandemic.

The Hill

As the great urban evacuation begins in America, rent in Manhattan has already fallen 6.6% (during reopening):

That’s the first decline in eighteen months and the largest drop since 2011. No one wants to live in virus central. Or it’s just a case of “So, who has money to pay rent?”

US home prices now at risk just like Manhattan rent:

Despite relatively steady home price appreciation in May, the U.S. housing market is on the precipice of an extended price slump, according to a CoreLogic report released Tuesday. The housing data provider’s May Home Price Index and HPI Forecast report predicts a year-over-year home price decrease of 6.6% by May 2021.

Barron’s

How serious is the housing peril?

Nearly Half Of Americans Consider Selling Home As COVID Crushes Finances

As the virus pandemic has metastasized into an economic downturn … new research offers a glimpse into struggling households…. Out of the 2,000 American homeowners polled, over half (52%) of respondents say they’re routinely worried about making future mortgage payments and nearly half (47%) considered selling their home because of the inability to service mortgage payments.

Zero Hedge

Oldest retailer in US files Chapter 11 bankruptcy:

People who work from home don’t need to dress up for work.

This new COVID normal of (in)formal meetings seems to have been the last nail in the coffin of America’s most iconic menswear retailers as Brooks Brothers has just filed for bankruptcy (just weeks after Men’s Wearhouse owner Tailored Brands considered the same).

Zero Hedge

A tidal wave of bankruptcies is coming:

Experts foresee so many filings in the coming months that the courts could struggle to salvage the businesses that are worth saving.

Edward I. Altman, the creator of the Z score, a widely used method of predicting business failures, estimated that this year will easily set a record for so-called mega bankruptcies — filings by companies with $1 billion or more in debt. And he expects the number of merely large bankruptcies — at least $100 million — to challenge the record set the year after the 2008 economic crisis.

Even a meaningful rebound in economic activity over the coming months won’t stop it, said Mr. Altman, the Max L. Heine professor of finance, emeritus, at New York University’s Stern School of Business. “The really hurting companies are too far gone to be saved,” he said.

The New York Times

It’s damage already done.

Businesses that had been reopening are slowing back down:

Hours worked at more than 44,000 small businesses, whose employee hours are managed by Homebase, fell in 25 states in the week ending June 28. That included a more than 7% decline in Arizona and a more than 5% drop in Texas, where new outbreaks forced governors to renege on aggressive efforts to reopen the economy….

Goldman Sachs analysts estimated that states accounting for over half the U.S. population had now paused or partially reversed their reopening plans, with limits reimposed most often on bars, restaurants and the size of gatherings.

Reuters

Big Apple may deliver less byte for the buck:

Sources familiar with Apple’s supply chain partners said suppliers ‘are less optimistic about shipments’ for the new 5G iPhone…. sources said 2020 5G iPhone 12 shipments could be halved, from 30-40 million to just 15-20 million.

Zero Hedge

That’s OK. Sales of primary products are not necessary in order to justify skyrocketing stock prices as we soar mindlessly toward the realm where shell corporations eventually trade at a trillion dollars in market cap. Life’s good.

Chicago Purchase Manager’s Index fails to rise as much as expected:

In conclusion

I’m going to sum it up by letting a rather big authority confirm all I’ve been saying about this recession being a great depression before it even began: (Though they completely failed — again — to see economic collapse coming, the experts eventually caught up with me.)

UCLA Anderson Forecast senior economist David the UCLA Anderson Forecast revised its outlook for the U.S. economy downward because of the expected impact of COVID-19, which was then still being referred to as an epidemic. Two weeks later, as the economy began shutting down because of the pandemic, the Forecast released the first revision in its 68-year history to assert that the U.S. economy was already in recession.

Now, in its second quarterly forecast of 2020, the Forecast team states that the global health crisis has “morphed into a Depression-like crisis” and that it does not expect the national economy to return to its 2019 fourth-quarter peak until 2023.U.S. employment will not recover until “well past 2022…. “Simply put, despite the Paycheck Protection Program, too many small businesses will fail and millions of jobs in restaurants and personal service firms will disappear in the short run. We believe that even with the availability of a vaccine, it will take time for consumers to return to normal.…”

The forecast notes that while the economy seems to have hit bottom, it will be a while before GDP and employment levels reach fourth-quarter 2019 levels, as the huge debt buildup in both the public and private sectors dampen output….

For too many workers, the recession will linger on well past the official end date of the depression.

The Hill

Thank you.

Epochalypse Now: How Deep is Your Depression?

Posted July 9, 2020 By David Haggith

We are nearing that mid-point in July when I said we would start to see the news turn from euphoria-inducing reopening positives to depression-developing realism.

Speaking of stock-market bulls who are stampeding uphill on the euphoria side, I wrote,

Right now the farce is with them — reopening has arrived! And these stupid people will believe that means they were right about the “V,” virtually assuring they continue to bet the market up for a little while…. The reopening means economic statistics will improve rapidly. That will give a lot of stupid people many reasons to believe they were right to think the obliterated economy would experience a V-shaped recovery.

What they won’t see because they don’t want to see it is that the steep recovery is not going to take the economy back to where it was…. It may take stocks back to their last highs (and beyond!) but not the economy.

And, so it has tuned out. The Dow and S&P have stalled at about a 60% retracement of their earlier crash, which is right where I said I thought they would. They stopped rising well below their all-time peaks because the COVIDcrisis raised its ugly head (the one caveat I gave for stocks continuing rise to the moon) very quickly after our nationwide economic reopening …

… but massive bets have poured into tech stocks — long seen as the surest bet in a risky marketplace — and have pushed the tech-heavy Nasdaq on a reach well beyond its former peak:

So, we see the stock market proving both claims true — that a rise of COVID-19 would knock the wind out of the euphoric bulls but that, absent a host of new COVID-19 headlines, the bulls would continue to focus on the great reopening news because the worst news would come later.

That is how I read what is happening in this split: money effectively shifted from the more value-driven Dow and S&P where the rise had been going strong into the high-velocity, high-tech NASDAQ to complete the charge up past former highs as I said the bulls would try to do.

The path became narrower; but the tech charge, where most of the testosterone is, continued to drive up the center, pumped by the V-shaped fantasy — pumped so hard that those remaining bulls are paying no attention to the new COVID headlines, while others have fallen to the sides.

“Here’s the full truth,” I said in early June about the euphoria-inducing reopening:

Reopening means, OF COURSE, businesses will start to show rapid improvement, and millions of jobs will certainly come back almost overnight. That’s half the truth. The other half, which investors … won’t see because they don’t want to, is that many businesses will not reopen, and many jobs will not come back…. But guess which half of the truth you get to see first? We’ll be deep into July before we start to see where the rapid recovery stalls out, and then it may take a little longer before investors start to see it because they don’t want to.

Yet, that truth is already flooding in for those who are willing to see it, and I’m going to lay out the broad overview of it here and then give a whole deluge of short facts tomorrow:

Now it really is a retail and restaurant apocalypse

While I said retail — because it was already dying — would show the worst damage, I also noted in other articles that restaurants would suffer similarly broad and quick deaths because they are typically run on thin margins.

So, here is where we are on reopening for those segments of the economy that I said would become the first devastating news to materialize, particularly restaurants, retail and unemployment. The latter I said would hold at deep recession levels. Now that reopening appears to have gone about as far as it is going to go because some states have reversed it, while others are going no further on an indefinite basis, we are already at the point where reopening is climaxing.

First, here’s a real ground-level (Main Street) view of how jaw-dropping the destruction to restaurants turned out to be (worse at this early date than even I thought it would be):

53% of restaurants closed amid coronavirus have shuttered permanently, Yelp data shows.

In March, restaurants had the highest numbers of business closures listed on the app compared to other industries, and the rate of closure has remained high. Of the businesses that closed, 17% are restaurants, and 53% of those restaurant closures are indicated as permanent on Yelp….

During the peak of the pandemic, the number of diners seated across Yelp Reservations and Waitlist dropped essentially to zero. In early June, numbers of diners seated are down 57% of pre-pandemic levels.

Restaurant Dive

The National Association of Restaurants had estimated 15% of restaurants would close for good. I had noted another publication, Open Table, that estimated 25% would never reopen. I ventured 20% would not reopen but then many others that did reopen would close under the partial-opening restrictions in most states, so that we’d eventually be down about 40%.

It looks like many of the latter kind (the ones that would reopen and then give up) were smart enough no to even give partial-reopening a try because, as I said, most restaurants will run at a loss throughout the period of partial reopening. They cannot make it with their customer base cut in half … or worse.

53% of those listed on Yelp (which is most) that closed are gone for good. That is absolutely catastrophic. That’s the number on Yelp that have so fully given up that they have already reported to their customers they will never reopen!

If you’ve been thinking I have been too bearish about. all of this, wait until you see how bad it may become once many of those that have reopened give up the ghost in exhaustion:

85% of independent restaurants may go out of business by the end of 2020, according to the Independent Restaurant Coalition…. Independent restaurants, which comprise 70% of all restaurants, rely more heavily on dine-in revenue than chains and don’t have a corporate safety net or support system to fall back on.

Business Insider

As for the retail apocalypse that I’ve been describing for, at least, three years,

41% of businesses closed on Yelp have shut down for good during the coronavirus pandemic. Retail was hit the worst…. Los Angeles recorded the largest total number of closures with 11,774 business establishments shuttering, but Las Vegas has had the highest number of closures relative to the number of businesses in the city at 1,921…. Shopping and retail stores have suffered 27,663 closures.

MarketWatch

We are not even to the middle of July, and already the first wave of permanent damage to wash over us is massive. Almost beyond belief! It’s a total tsunami of “permanent” business destruction, and a lot more waves are coming from all the businesses that are impacted by the businesses that have just shut down for good!

Yet, do you think I could convince bullish investors on other sites that we are going beyond a recession and into a second Great Depression and that the stock market is raving mad? Not even with my best arguments.

However that, too, fits exactly what I predicted, which was that bull-headed stock traders would certainly be the last to figure this out. I was so certain the lunacy and complete denial would keep charging ahead that I said I was going to bet my own retirement money on it in stocks for a short ride up, unless and until the COVIDcrisis came crashing back into the party with new headlines of rising cases and deaths. It almost immediately did, making the ride shorter than I anticipated because that was my self-imposed stop for getting out of the risk.

I wanted to put my money where my mouth is to prove how much I believed what I was saying, and I would have made money had I stayed in because most of the stock funds I invested our three small 401Ks in were heavy in tech. However, I adhered to my stop when COVID crashed the party with rapidly rising cases.

So, it was a dumb bet in terms of hoping the health crisis would stay down for the first couple weeks of reopening; but it was not at all wrong about how far the market euphoria would keep pushing even past the start of truly depressing news that is now coming in before the mid-July date I gave for the reversal in the economic news flow. Today’s rise in the Nasdaq in the face of today’s terrible economic news, shown below, affirms that.

Epic Great-Depression-level unemployment begins new epoch in US history

I noted in my article referenced above that the biggest upward driver for the stock market’s irrational exuberance would be the certain-to-be-seen rapid turnaround in job losses from the worst losses in history to the best gains in history. That certainly has turned out to be the centerpiece of the narrative the market is riding on; but the deeper truth, I said, would be…

Unemployment will remain high enough to still be considered typical of a recession because marginal businesses did not reopen (including particularly retail stores that were barely holding on)….

And, so, here is how all of that is coming together in this morning’s hot news:

As the number of new coronavirus cases in the United States rose to a single-day record [Wednesday], fresh government data on Thursday showed another 1.3 million Americans filed for jobless benefits, highlighting the pandemic’s devastating impact on the economy. More than 60,000 new COVID-19 infections were reported on Wednesday and U.S. deaths rose by more than 900 for the second straight day, the highest since early June…. The grim U.S. numbers come on top of extraordinarily high jobless figures, although they came in lower than economists had forecast…. Initial unemployment claims hit a historic peak of nearly 6.9 million in late March. Although they have gradually fallen, claims remain roughly double their highest point during the 2007-09 Great Recession. With coronavirus cases rising in 41 of the 50 U.S. states over the past two weeks, according to a Reuters analysis, many states have had to halt and roll back plans to reopen businesses and lift restrictions.

Reuters

Reuters lead competitor carried a similar kind of report a few days ago:

US unemployment falls to 11%, but new shutdowns are underway.

U.S. unemployment fell to 11.1% in June as the economy added a solid 4.8 million jobs, the government reported Thursday. But the job-market recovery may already be faltering because of a new round of closings and layoffs triggered by a resurgence of the coronavirus…. While the jobless rate was down from 13.3% in May, it is still at a Depression-era level. And the data was gathered during the second week of June, just before a number of states began to reverse or suspend the reopenings.

AP

That’s how bad it it … just in the broad sweep! And that was measured before states started to reverse their reopening plans. That unemployment was, in other words, solely due to the effects of the initial shutdown continuing to play through.

An epic conclusion

These numbers are truly as grand on a historic scale as I said the next recession would be when I named what was coming “The Epocalypse” a few years ago. In fact, the data are worse by far than what I thought the starting data for permanent destruction would be back when I started (a couple of months ago) to lay out the timeline for how all of this would go down.

While the pandemic response is clearly a huge factor in the present crisis, the economy is collapsing much harder than it would have with deeper, more permanent destruction than our politicians ever thought their closures could cause because the economy was a house of cards ready to collapse in the first place.

They didn’t see what destruction their actions would wreck upon the economy because they were blind to how fractured our economy was by the deep flaws I’ve been pointing out for years. Our social structures are caving in at the same time, as I also said would be part of The Epocalypse.

Shortly after the COVID-crisis had taken down the stock market in a Great-Depression-era sized crash, I started making it clear that the worst numbers — the permanent damage — wouldn’t even start to become known until mid-July. Now I can say that train of facts has started pulling into the station a week early.

This article presents the broad picture of just how much this recession is following the exact fast track I said it would … including the stupid stock market. Tomorrow, I’m going to lay out a finer-grained picture by presenting numerous headlines as thumbnail prints of the economic collapse that is gaping now open beneath us.

This is not just a recession. It may even become worse than the Great Depression. If these numbers hold for permanent business closures (and there is no reason to think they won’t) and new unemployment claims continue as they are now starting to crystalize even before the middle of July, this will certainly develop into the complete economic and social collapse I call “The Epocalypse.”

Death of the dollar, death of money as we know it.

As I wrote in my latest Patron Post, this collapse may also now include a global dollar collapse, which will change the world and the United States’ relationship to it. In addition to all I wrote in that article on the possibility of a dollar collapse and its effects, which was quite extensive, I am now including here in this article an interview with Shadowstats’ John Williams on that same subject.

Williams has been an economist since the Nixon administration more than forty years ago. He is the one I sometimes go to for quotes on real economic data without all corrupt revisions the government has worked into its formulae since the dollar lost its last hold on gold in the Nixon era and the government had to start compensating for the truth.

Williams validates everything I wrote this week about a possible dollar collapse (and that means the Fed’s destruction along with it), saying the dollar is looking seriously imperiled this year.

As I stated at the start of my Patron Post, I’ve never written about the collapse of the dollar as a possibility in any year until now. I’m not predicting it will collapse this year because I point out in my own article that there are also strong disinflationary forces at work; but this is the first year in which I think it actually could. It is time to be vigilant about it, watching what is happening in foreign currency exchanges and keeping a close eye on what is happening with US inflation (not as falsely reported by the government, but as such stats used to be calculated in the 1970s and still are by John Williams on Shadowstats.com.

I’m putting Williams’ interview in this article, rather than my Patron Post on the subject, because he also spells out why this current economic crisis is going to turn into something even worse than the Great Depression — an all-out “economic collapse.” Like me, he says the roots for all of this were laid in before COVID-19 came along.

Williams also says the recession started last year … when I said it would, though I also said it wouldn’t be recognized until this year:

If you want more on the possible dollar collapse that may become part of this global catastrophe, it’s in my last Patron Post. But I wanted everyone to have, at least, the gist of what is coming to the world free here on this site through articles like this one that are available to all because of those patrons who generously try to make all of this worth my time. (It remains mostly a labor of love and earnest concern.)

You can see that post and everything I’ve written over the past year about the move to central bank digital currencies, the death of cash, and the Fed’s final solutions to its failing recovery as my thank-you to those who go the extra mile and become patrons at the $5 level or above via the link below:

Falling housing prices may cause Housing Market Crash 2.0.

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Photo of a car used as a tent to demonstrate depth of Great Depression in these economic predictions.

The troubles listed here in my 2020 economic predictions are so severe and so likely to get even worse that it’s more difficult to imagine they won’t get worse than to believe they will. Just a few of these misfortunes would be enough to plunge us into an abyss of social and financial catastrophes.

Read the remainder of this entry »

Before we get into the timing of the recession, here is a graph that is particularly telling of the Fed’s journey and is worth studying from left to right. Notice how chaotic and less effective our journey with FedMed has become, just as I wrote about in another article this week (“Zero Hedge Confirms Fed is Dead“).

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