Summer Storm Keeps Building as Second Dip of Great Recession Approaches
These updates to my list of “Seven Troubles Assailing the US Economy” are far too important to remain buried at the end of that article since many readers may not return to the article to check for updates. The summer economic crisis I’ve been predicting is building even more rapidly than when I reported a week ago. It’s almost here:
Total household debt now exceeds the peek it hit just before the economic collapse into the Great Recession. 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.
Housing and all other construction take another 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.
Financial stocks have collapsed. Financials, which shot up more than other classes of stocks during the Trump Rally, have already completely collapsed in terms of their rally gains:
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.â€
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 is back up to its 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. When sales stall and inventory backs up, prices collapse under force. Values of used cars collapse, and that means the value of collateral also collapses, making people less likely to maintain their auto loans as the balance on a new loan exceeds the value of the car. The pressure is on for an auto collapse that has been predicted here for some time.
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, its 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 real-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. Because they are vital to a mall’s success, they 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 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 in terms of the CAPE ratio, which measures how pricy stocks are in comparison to their ten-year average. The CAPE 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). Previous months were also revised downward. Typical of these massaged job reports, May saw the biggest drop in full-time jobs since June of 2014, and the jobs that came in to replace them were largely part-time, but are counted with the same weight as if a job is a job is a job, regardless of how much less it pays, how much less permanent it is likely to be, how many fewer hours it provides and how reduced or eliminated its benefits.
Even the insanely optimistic Ron Insana said the jobs report could be a worrisome sign of a “pronounced economic slowdown,” according to Newsmax. Wage data, an area where even the Fed has acknowledged growth is mandatory in order for the economic benefits of “recovery” to be sustainable, 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)
I rarely look to Ron Insana for anything because his permasmile on the economy is always several shades too rosy for my reality glasses. However, 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.
Speaking of the pig, the official US unemployment rate is now exactly at the nadir it has reached right before almost every recession the US has ever experienced:
And those are just the problems inside the US! They don’t even begin to include pressures that may arrive from outside, such as Europe’s rapidly failing banks in Spain, Italy, Greece, and even Germany! Nor the potential capsizing of China over the months ahead as its shadow banking system roles over just as even shadier collateral is called upon in a system that has been rank with corrupt bookkeeping and fake government statistics since Genghis Khan founded the Mongol empire. It doesn’t include an implosion of the Canadian housing explosion. It doesn’t take into account the possibilities of the land down under turning upside down (as even one of its own famous hedge fund managers has said the Australian stock market and housing market are so insane he’s returning all of his investors’ money as there are no safe bets.)
Conclusion: Fundamentals are falling out RAPIDLY from under the stock market, but the robotraders keep trying to do their relentless programmed job of ratcheting the market up with a million incremental squeezes. Eventually, the falling fundamentals will overwhelm the machines. They will click their last ratchet upward. When they do, I highly suspect these bots that have been designed by programmers who never knew anything but a bull market during their short careers will outbid each other all the way to the bottom unless some human wisely yanks the IT cord on New York Stock Exchange to stop the slaughter.
Even in that case, restarting the stock market the next day will be problematic with all the bots on line and ready to charge downhill in mutual electronic bewilderment. If the bots have failsafes or circuit breakers built into their algos, I’m willing to bet those stops perform poorly. So, expect more jolts and plug pullings.
My observation of human-designed “failsafes” is that the word, itself, should trigger alarms. Failsafes can can be summed up in single words or short names like like “Three-Mile Island, China Syndrome, Chernobyl, Fukushima.” All things that were human engineered to be beyond failure with all their safety mechanisms. Nature (reality) always finds a way. The slow, crushing collapse of the now-churning economy will overwhelm the algorithms, and I doubt those human replacements will have a clue as to what to do in a bear market. We’ll be at the mercy of the machines.
Stay in for the ride only if you’re good at making money on the ugly because summer is stacking up perfectly for my predictions. (But also note that I have no credentials or license as a financial advisor, so you are responsible to make your own calls. This is just one average Joe’s opinion who has a habit of seeing which way the wind is blowing when others don’t want to see it.)
Once the Fed’s fake recovery fails, even as it is now crumbling all around us, the true depth of the Great Recession will become known and felt by all … except the 1%. The Fed is knocking the props out from under their own “recovery,” which was intended to bridge the Great Recession, just as their bridge to nowhere is starting to fall of its own dead weight. They are fitting their old pattern of raising interest rates into a failing economy, something I’ve also predicted they would do because they are so good at that. Thus, their next interest raise will also assist the collapse.
Friday, June 9th 2017 at 11:15 am |
I was just reading the list of “deeply distressed” retail companies and it’s quite a list. There are new ones added to the list of credit downgrades. These companies will be out of business by summer. Then, winter is coming- a hard, cold, long winter.
I can’t see anything but disaster for this economy. The stock market is a skewed metric for gauging the health of the economy. For example, it is hard to digest that Tesla is now worth more (on paper) than Ford and GM. Tesla’s only profit is from carbon credits. It’s not profitable in anyway and it’s a ponzi.
Dark days are coming and I have to say I am afraid for my children. I have two grand children and I am afraid for them t. I have no where to turn.
Many people are not going to make it. It’s hard to say who will make it and who won’t, it depends on a person’s individual’s courage, fortitude, constitution, stamina, will to live, skill set, preparation, spirituality and endurance. I fear for what is coming I really do. My heart is heavy. At first i wanted it to come, but now, I don’t, but dark days are coming nevertheless.
Friday, June 9th 2017 at 3:00 pm |
It sure is quite a list! I just read an article today that said already 23,000 stores in the US are scheduled to close this year and next! 23,000! That’s utterly massive! And that only includes those stores that have already been announced! How much larger does it get when the 23,000 are all boarded up, and malls close, forcing others out … or others close because they no longer get enough customers coming by without the anchor stores there as a draw. The same article estimates 300 malls will shut down entirely in the next five years.
That’s why I call it a retail apocalypse, and I see there are finally a few articles coming out that are seeing it in the same light, and even using that term. There is absolutely nothing Trump or anyone else can do to turn that around. Those are decisions already made that are due to a major change in how people shop and what kinds of things they want to spend their money on. That kind of paradigm shift in shopping, which has little to do with the condition of the economy, would be hard to absorb even in a vibrant economy.
I’ve been seeing notices of those closures (one company at at time) for over a year, and I’ve noticed they were mostly slated to start happening this year, but this is the first time I’ve read an article where someone gave the total. ( http://www.newsmax.com/Finance/StreetTalk/retail-stores-shoppers-brick/2017/06/09/id/795082/ )
When you add to that the troubles auto makers are just now entering (something I’ve seen coming for a year because the entire scene exactly matched the auto scene as it was shortly before the Great Recession), then the economy is getting slammed hard this year and next from two sides. Let the pressure out from the Trump Rally at the same time, if Trump can’t get his plans through congress, and you have some major deflation of the economy.
That’s why I am convinced this is now a ghost economy. We are just treading water until all this stuff piles up so badly that there is no question left in anyone’s mind that we’re in deep trouble. Even the Fed cannot change shopping behaviors and turn all those failing major retailers around. But when that hits in the middle of an already peaked stock market that is ready to turn, I think it will bring the market down, too, regardless of what the Fed does.
Nevertheless, as you say, even if central banks float the market with their infinite source of cash, that’s no gauge of the rest of the economy because it is complete false. Like you say with Tesla, I, too, don’t think its worth a fraction of what its getting. It’s one of the largest car manufacturers by market value, but is one of the smallest by volume of cars sold, by manufacturing capacity, or by assets.
Friday, June 9th 2017 at 3:10 pm |
What are we going to do? Nobody will be untouched by what’s coming. And yes, it’s too late for Trump’s ambitious agenda, bless his heart.
Friday, June 9th 2017 at 3:28 pm |
That’s where I wish I had more to offer. There is, of course, all the prepping stuff you mention, but that only gets you so far. Certainly faith in God helps with the internal stuff we have to face.
I’ve seen from my own experience that very tough times can be the richest experiences spiritually, even when I was eating only by picking what was ripe and growing wild alongside the road in Hawaii for a couple of weeks at my lowest point when I went through divorce and decided to pay off all our debts and let my ex-wife have what little was left and start from scratch. (I was not, however, homeless or jobless; but the cupboards were completely bare by the time I did all I could to secure a new home front, and they pretty much staid that way for about three months.) But in other ways, it was an amazing time in life that I look back to. I learned at a deep level that I can survive any desert.
Friday, June 9th 2017 at 4:17 pm |
Thank you for the encouragement, and sharing your experience. You have no idea how encouraging it is to read it.
I am not in that place. Yet. But I am very well aware of what’s coming and I’m equally aware that many aren’t going to make it. Maybe I won’t make it! Maybe I will.
My kids are adults, in their 20s and they won’t listen. But each is having his or her own experience with economic collapse and they can’t (won’t) make sense of it and yet it’s staring them in the face (me) and still they refuse to believe what’s happening. And the decending loop continues.
Saturday, June 10th 2017 at 10:48 am |
I’m glad it helped. I wish I had more practical advise besides the standard “buy gold” and be “prepped,” some of which I think goes too far. Physical gold is not that easy to buy, ship, insure during shipment, and hold securely and then not that easy to do the reverse when you need to turn it back into cash. You can conceivably lose 100% of your investment if the “coach” is robbed during shipment or the ship sinks if you don’t insure it, which assures an immediate loss of 3-5% on your investment. You also have the risk of whether you are actually getting the assay of gold you are buying.
Plus, at the end of the day, central banks rig the price of gold and have been rigging it for years because they know it is the only real competitor to their proprietary product, which is money. So, if it ever seriously competes, they’ll dump their hoards to try to drive it out of business. Plus, we saw when things got bad enough during the Great Depression that the government simply confiscated all gold at a government-fixed price. So, I think it’s good to own some, but it’s not failsafe and not that simple to do. I don’t own any because I haven’t overcome the inertia to do all of that with our retirement funds, which aren’t that substantial anyway because most or our retirement isn in a defined-benefit PERS II retirement plan, which you cannot turn into gold, and where the only way the government can get out of paying you what they’ve promised is if the government declares bankruptcy.
I think this is one of those things we are going to have to largely figure our way through as it happens. Some basic prepping is wise, but I see that as a way to buy a little time for the transition. Having good land to grow food on is a wise idea if you have that skill and ability. Growing one’s own food is obviously very time consuming and strenuous; but if it came down to being necessary for our survival, I’m sure most of us could do it.
I don’t think, however, we’re talking about a starvation event because when the US government sees how bad this is going to be, they will do everything possible to keep it from becoming that bad. Their ultimate global answer is not going to be sustainable over the long run (because it’s very unlikely they are going to flush out the rich by flushing all the debt we owe to them, which has to be part of any real solution, and I don’t suppose the peasants have it in them to revolt with the kind of concerted demand that assures the banksters take the fall with their own personal riches first by clawing all that back since it was ill-gotten in the first place), but I am pretty sure in order to save the banksters from a peasant revolt that the government will soften the landing for awhile (by taking on every more unsustainable government debt), and during that time we can figure out what we’re going to do individually as we start to understand the lay of the land before us.
But, at that distance out, I’m getting at guess work, which is why I think mostly we will have to figure this out as we go and as we see how bad it gets; and what will get us through that is good family relationships because family can be our team and spiritual faith, which my own experience say only came as I worked through a rough spot and began to realize as I went the degree to which I can adapt and live in a desert and can really experience some wonderful personal growth during that time.
It’s kind of like learning to swim by being thrown in the water. Scary at first, but if you make it through the transition and keep your wits about you and realize, hey, I am keeping my head above water and I am making progress to land, then belief starts to override fear. And once you actually learn to swim by experience, you don’t even fear going into the deepest water because depth no longer makes any difference. Once you’ve learned you CAN stay on top for a long time by just floating, it’s as easy to stay on top of a thousand feet of water as on top of ten.
In fact, I’ve gotten very good at teaching small children to swim in one day by teaching them first that they can float. Once they know they CAN stay on top and start to lose their fear, they learn very quickly. Swimming is just floating … with hand motions.
Anyway, I hope I haven’t tainted my help by too much talk, as I am sometimes prone to do. If so, just focus on the takeaway value that you already found: my own experience was that some really wonderful spiritual growth can happen in those times IF that’s what you make them about and that I reached a certain point in the experience where I realized I can survive in a desert. That was an amazing AHAH! realization for me. Once you know you can adapt to be a creature of the desert, the fear eases away because desert life becomes as natural for you as for any desert camellian you’ve ever seen. For a desert creature, that’s just ordinary life. You gain a new kind of deep inner confidence in your amphibious ability to live underwater or on hot dry land. There is a certain point at which that transition becomes real to you, and it feel empowering.
Don’t know how I’d make it through that without the spiritual side, though, that gave me the rudimentary belief that all things work together for those whose minds are truly fixed on God. It wasn’t just a crutch because along the way I saw some amazing things happen that became a part of that empowerment, such as not only surviving a hurricane at the very worst part of my experience that made landfall RIGHT AT MY DOORSTEP, but being inside the eye of the storm as it made landfall and seeing how amazingly calm and spectacularly beautiful it was inside the eye and how literally breathtaking as the vacuum in the eye of the storm felt like rarified atmosphere. An experience I’ll remember all my life as it became symbolic to me that life can be beautiful even right inside of a monster storm. Spectacularly beautiful.
Maybe I’ll write about that experience someday and even include some video I took. (Good idea for down the road when all of this hits and people need a lift. Maybe I DO have something to share for such times.)
–David
Sunday, June 11th 2017 at 9:44 am |
That is beautifully expressed in hopeful words.
First, I’d like to address the issue of gold. I don’t have a lot of cash to invest in PM, gold specifically, but a long time ago, one of my customers paid her bill with a brick of 98,5 silver, about the size of an ordinary brick. This was back in 1995 and at the time I had it appraised it was worth about $400. I still have it, I kept it because I’ve never seen that much silver, and to me it is a relic that I wanted to hold on to for no particular reason other than i liked it. I haven’t had it appraised since 1995.
My brother had given me a gift of several silver coins, dollar 50 in all, years ago. I still have them too. I’ve never had them appraised or looked at in anyway. There is something about silver that excites me more than gold. That is, the way it’s incredibly difficult to mine. Electrum can be found in silver veins. I’ve never seen electrum.
The illustration of swimming, namely keeping your head above water, in ten feet or 1000 feet is interesting and encouraging. I’ll share that with my sons. I know they need encouragement.
Right now it’s difficult to see beauty in this storm, but we aren’t in the eye quite yet.
Thank you again.
Tuesday, June 13th 2017 at 3:44 am |
…”AHAH! realization for me. Once you know you can adapt to be a creature of the desert, the fear eases away because desert life becomes as natural for you as for any desert camellian you’ve ever seen. For a desert creature, what seems like impossibly habitats to survive in to non-desert dweller, is just ordinary life. You gain a new kind of deep inner confidence in your amphibious ability to live underwater or on hot dry land with equal ability. There is a certain point at which that transition becomes real to you internally, and it feels quite empowering”…
WTF????? Rotflmao!!!!!
Meanwhile the ability to adapt to and thrive in histories GREATEST ECONOMIC EXPANSION in aggregate dollar and asset value has remained exclusive to you for?
Solution: CONTINUOUSLY double down on foolish predictions based on HOMESPUN hokum and guesswork regardless of CONTINUOUS economic and market data and price action confirmations for such a protracted time frame?
Tuesday, June 13th 2017 at 2:54 pm |
Your command of English is fascinating, Special. I don’t know how many “histories” of economic expansion there are; but, yes, I have chosen to exclude myself from history’s most vacuous expansion. You are, of course, welcome to enjoy the wing-suit jumping all you want. It’s just not how I fly.
Sunday, July 2nd 2017 at 8:46 am |
What do you think abut a currency swap from USD to something predicted to be more stable like the Canadian or Swiss? Thanks for your insights.
Sunday, July 2nd 2017 at 10:02 pm |
Well, the greatest problem would be that the national banking system would fight it to the death because the dollar is their proprietary product, and they have managed to make it a world’s leading currency. It’s not quite a global monopoly, but it’s the next best thing for US banksters.
Monday, July 3rd 2017 at 4:49 am |
Sorry, but I meant using a currency swap now with savings Americans have in USD to a more predictable one to hedge against the collapse of the Dollar. My local banker told me it is no problem to arrange a currency swap to physically hold in hand the other currency. We did not discuss the amount, as several hundred thousand may have to be spread out over time. I appreciate your thoughts.
Monday, July 3rd 2017 at 5:34 am |
Ah. It was late at night when I responded, and I was hurrying off to bed, or I probably would have realized that. I don’t know if the dollar will collapse or not. Many, of course, have been saying it will; but I think that is somewhat of a knee-jerk response. The fact is we’ve never seen the kind of collapse that is coming because we’ve never seen most of the central banks of the world in the same state of massive bond/derivative holdings all at the same time. That makes it hard to have any clear idea of how things will fall apart — what pieces will slide first; what pieces will be left hanging, but still surviving. The buildup of things ready to break up in massive ways is global this time.
Russia and China have certainly been working together to end the dollar’s hegemony. Some middle-eastern states would certainly like to see the petrodollar cease to dominate; but, in the end, the yen, the yuan, the euro, the pound, even the Swiss franc are all beset with their own problems; and no one is in love with the ruble. So, what currency is the safest one to swap to? The franc? It all comes down to which currency is going to wind up being the best horse at the glue factory when everything falls apart. No harm in diversifying a little, I suppose.
Thursday, June 8th 2017 at 10:21 am |
The early part wouldn’t surprise me, even though I see things falling apart badly, starting this summer. You have to consider the Fed has many proxies, which are other central banks. The Swiss central bank owns more Facebook stocks than its founder, Mark Zuckerberg. It currently holds more than $80 billion in US stocks.
Now that central banks have no reservations about buying stocks to prop up the economy, it really becomes hard to imagine where the limit is on what they can do to bounce things back up if they really need to. See the stock market crashing? Buy $10 billion in FAANG stocks every day for a week. (Or have one of your national cohorts do it.) Still not enough, make it $50 billion. Whatever it takes. After all, the banks have unlimited power to create money out of thin air at will. Also, the more stocks you own, the more you can keep the market up by just refusing to sell your shares. Central banks never have a financial need to sell (or it’s hard to conceive of one). So, if they want to prop up Facebook, buy a third of the stocks and just sit on them. Is it any wonder, then, that Facebook puts the “F” in “FAANG?”
So, while I talk about where things will crash if they run their natural course, there is no natural course assured and no limit to how much money the Fed through its proxies can pump into the stock market without anyone even knowing they’re doing it. (“You buy our stocks, we’ll buy your bonds.” Whatever.)
Of course, if they’re seen buying all the stocks or suspected too much of doing it through their proxies, that would tell everyone things are quite desperate with the Fed being the prop of last resort in the stock market.
Regardless of how long the Fed chooses to prop up the stock market, however, the main economy is going to start breaking up worse and worse this summer. If the Fed wants to make the stock market appear to defy both gravity and imagination, I imagine they can for awhile, but I am thinking that, if things get that bad, they may be more inclined to let it crash on Trump’s watch and let him take the blame for the entire catastrophe in order to say, “See what happens when you go anti-global.” So, my bet is partly based on thinking they won’t want to prop it up at any cost when they have the convenience of Trump as a ready scapegoat. By being so erratic and bombastic (as he has always been), he makes it easy for them to use him as a scapegoat.
Still, I’m not sure things are as conspiratorial as all that, and if they let it finally fall, it’s hard to see how many of their member banks don’t get busted up in the rubble, though there is always the hope that those banks own the government enough to get bailed out again … somehow.
It’s just such a totally different situation than we’ve ever seen now that banks can invest directly in stocks and central banks are investing directly in stocks, and even the Fed has talked openly about doing so. What I am pretty sure of is that Wonderland is beginning to wobble badly and that it is not going to become less wobbly with Trump at the helm and with all of his opponents more engaged in battle than in saving the ship from the rocks. So, I’m pretty sure it is rocks for us … dead ahead.
Wednesday, June 7th 2017 at 9:40 pm |
An excellent run-down of how perilous our situation is, Dave. Thanks again for putting it together. I have followed this blog for over a year now and always agreed about the inevitability of your so-called epocalypse. Of course, I am also reminded of that great line in that great movie The Big Short; “I’m not wrong, I’m early”, and there is no telling how long the final curtain can be forestalled by the Central Bank printing presses. There is just no knowing that another few Trillion in funny-money won’t keep the dam from bursting for another quarter or two, but as has been noted elsewhere, more CB printing has been going on in 2017 than ever before, so perhaps even that trick is finally running out of steam. I have said on here before and will say again: A real and sustained crash in oil prices from current prices could be what kicks the legs out – and not because it indicates a drop in economic activity, but because it reduces the amount of real liquidity entering the global banking system via oil revenues. But hey, what do I know? I do see crude prices wobbling, but maybe an impromptu war between Saudi Arabia and Qatar can send them higher for another little while.
Thursday, June 8th 2017 at 10:22 am |
The part about being early wouldn’t surprise me, even though I see things falling apart badly, starting this summer. You have to consider the Fed has many proxies, which are other central banks. The Swiss central bank owns more Facebook stocks than its founder, Mark Zuckerberg. It currently holds more than $80 billion in US stocks.
Now that central banks have no reservations about buying stocks to prop up the economy, it really becomes hard to imagine where the limit is on what they can do to bounce things back up if they really need to. See the stock market crashing? Buy $10 billion in FAANG stocks every day for a week. (Or have one of your national cohorts do it.) Still not enough, make it $50 billion. Whatever it takes. After all, the banks have unlimited power to create money out of thin air at will. Also, the more stocks you own, the more you can keep the market up by just refusing to sell your shares. Central banks never have a financial need to sell (or it’s hard to conceive of one). So, if they want to prop up Facebook, buy a third of the stocks and just sit on them. Is it any wonder, then, that Facebook puts the “F” in “FAANG?”
So, while I talk about where things will crash if they run their natural course, there is no natural course assured and no limit to how much money the Fed through its proxies can pump into the stock market without anyone even knowing they’re doing it. (“You buy our stocks, we’ll buy your bonds.” Whatever.)
Of course, if they’re seen buying all the stocks or suspected too much of doing it through their proxies, that would tell everyone things are quite desperate with the Fed being the prop of last resort in the stock market.
Regardless of how long the Fed chooses to prop up the stock market, however, the main economy is going to start breaking up worse and worse this summer. If the Fed wants to make the stock market appear to defy both gravity and imagination, I imagine they can for awhile, but I am thinking that, if things get that bad, they may be more inclined to let it crash on Trump’s watch and let him take the blame for the entire catastrophe in order to say, “See what happens when you go anti-global.” So, my bet is partly based on thinking they won’t want to prop it up at any cost when they have the convenience of Trump as a ready scapegoat. By being so erratic and bombastic (as he has always been), he makes it easy for them to use him as a scapegoat.
Still, I’m not sure things are as conspiratorial as all that, and if they let it finally fall, it’s hard to see how many of their member banks don’t get busted up in the rubble, though there is always the hope that those banks own the government enough to get bailed out again … somehow.
It’s just such a totally different situation than we’ve ever seen now that banks can invest directly in stocks and central banks are investing directly in stocks, and even the Fed has talked openly about doing so. What I am pretty sure of is that Wonderland is beginning to wobble badly and that it is not going to become less wobbly with Trump at the helm and with all of his opponents more engaged in battle than in saving the ship from the rocks. So, I’m pretty sure it is rocks for us … dead ahead.
Friday, June 9th 2017 at 12:18 pm |
“Central banks have bought a record $1.5 trillion of financial assets in just the first five months of 2017” – by chance, do you have a link that would provide a list of those CBs and what us stocks they own? I wasn’t aware that this was happening. I find this frightening actually. Glad I’m 100% in cash right now. Great blog BTW. I thought I was the only one in the country who is thinking there is a huge bubble right now.
Friday, June 9th 2017 at 2:39 pm |
I suspected that was what was propping up the stock market, but I had not read anything saying so until I just saw an article by Michael Snyder a day ago that made the claim. ( http://themostimportantnews.com/archives/central-banks-now-own-stocks-and-bonds-worth-trillions-and-they-could-crash-the-markets-by-selling-them ) As it was just info I was adding to a comment here, I didn’t put in any time to research it further.
I know I did hear Janet Yellen talking about the Fed starting to do that about a year ago, but I never heard anything about that going any further than just talk. She was clearly running the flag up the pole to see what kind of response she got, and I don’t know what the response was.
That’s why I wondered if, rather than raise eyebrows by doing it directly, if the Fed isn’t using the Swiss central bank as their proxy. (“You buy x amount in US stocks, and we’ll buy this amount in bonds from you.” Something that would look like normal central-bank activity on the Fed’s own balance sheet.)
It is scary in that, if central banks really are buying US stocks directly, they can own the entire market if they want, given their unlimited abilities to create money at will and the huge number of central banks that could cooperate to prop up any one market or simply take ownership of all those companies by getting controlling interest in all of them. It’s a kind of market rigging that should never be allowed at all.
Sunday, June 4th 2017 at 7:00 pm |
I don’t think the Fed will raise again. It knows all the official, ‘Easter Bunny’ data is rigged. Surely it is clear now that the Fed and all other central banks exist to keep big banksters and big corp. chiefs rolling in ill gotten gains. Our economies – and thus us, the 99% – have been sacrificed at the alter of usury.
Sunday, June 4th 2017 at 10:09 pm |
I’m not sure, Auldfriend. You could be right. If the Fed is on a conspiracy to bring things down while Trump can be the fall guy, then they will raise rates to help make sure things go down on his watch. I don’t really go along with the total conspiracy stuff, but I DO think the Fed is incredibly blind and actually believes in its recovery and also fear that, should the economy take a downturn, they need some of their old mojo back to stimulate things again. Simply continuing the stimulus that is already one won’t jolt things back to life. So, they need to get back to somewhat normalized interest rates, so their paddles have some jolt if they have to jumpstart the old heart.
I think they believe in their recovery and want to prove it real, and I think they are blind to how fake their recovery is, so they are very likely to raise interest rates into a dying economy BECAUSE THE LAST PEOPLE ON EARTH TO BE AWARE OF HOW BAD THE ECONOMY IS ARE ALWAYS THOSE WHO WORK FOR THE FEDERAL RESERVE. They have a history of raising rates directly into economic crashes and, thereby, turning a downturn into a crash. They have a history of believing too much in themselves.
If you are right and they do know the economy is up the creek, they will still raise rates because they would far rather it appears to fall because the Trump Rally failed due to all Trump’s APPARENT scandals and, thereby, make a scapegoat out of him so they don’t get blamed for a recovery that was always a mirage in the fist place. I you are right, we still face the same situation, which is that the NEED it to fall when they can most easily blame someone other than themselves.
You and I and readers of this blog, now the failure was baked in because the solution was ludicrous from the beginning; but that’s the last thing they’d want anyone to see.
The employment stats are so massively rigged that I stopped writing about that long ago, but in the past in this blog I pointed out how rigged they are. Rather than endlessly repeat myself, I merely point out that — rigged as they are (and they are huge rigged to make the Fed look successful as well as any incumbent administration) — they are STILL pointing solidly downhill. So, if even rigged stats look awful, imagine how awful reality is!
We are absolutely sacrifice to the altar of usury. The amazing thing about greed is that the rich are so blind as to keep thinking they can STILL kick it up another notch and take a little more for themselves, having no concept of the fact that the more they kill the middle class by syphoning all the wealth to the top and leaving nothing to nourish the roots, the more they assure their own starvation when there is NO demand left, NO ABILITY left to pay for their products. And, no matter how much speculators bid up the market, the days sales plummet to almost nothing, no stock algorithm will find a way to go higher with sales frozen at absolute zero. Sooner or later, reality becomes so ABSOLUTE that it is undeniable.
–David
Monday, June 5th 2017 at 11:41 am |
With all do respect, what do you mean by “should the economy take a downturn. . .”? Is it not a given that the economy will take a downturn? Is it not in a downturn at this moment?
What do you think it would take to get things back on track, if those things were realistically implemented right now- today. Forget unrealistic solutions like Trump’s economic agenda suddenly passing through Congress unabated. We know that is not an option. But, in realistic terms, what would take?
With regard to the retail “apocalypse”, I don’t see how store and mall closures (the paradigm shift you speak of) wouldn’t effect retail’s overall sales, or am I reading something wrong? How a population shops is exactly why we are seeing these store closures. Brick n mortar closures means job losses- as Amazon increases automation. That culls the pool of shoppers whether they are shopping online or otherwise. Sales would eventually be effected by how a person shops, not just how much of what they buy. Right?
Monday, June 5th 2017 at 2:04 pm |
Here’s what I meant when I said, “the Fed is incredibly blind and actually believes in its recovery and also fear that, should the economy take a downturn, they need some of their old mojo back to stimulate things again:”
The Fed believes in its recovery. Believe it or not, the FED does not see that the economy is in a downturn at all. They saw that it went into one from 2007 to 2009, but they believe they ended that recession with their recovery plan. They see everything since the official dates of that recession as an upturn. They actually believe the economy is still improving (not even turning back down from their recovery.
The Fed won’t believe the economy is in a real downturn until it is actually OFFICIALLY back in recession, which by their measure means GDP has to be negative for two quarters in row. The evidence of their slowness to even see recession in their own terms can be seen in Ben Bernanke who declared in the middle of the last recession that there was no recession in sight (since it didn’t appear until all second quarter data was in and the first quarter was revised. Recessions only get declared officially, at best, two quarters AFTER they start since they require two quarters of negative GDP to be called a recession by the Fed’s terms.
So, what they fear is they may in a year find we have had two quarters of receding GDP, and they’ll have nothing they can do to lower interest rates enough to get any shock value.
So, I’m not talking in terms of how I see the economy but in terms of how the Fed sees it through their own peculiar and misguiding glasses. In their view, things are perking along OK right now; they’re a success story in their own opinion.
As for what it would take to get the economy on track right now, I think the Fed has taken us far past the point where that is possible without a major crash. I don’t think there is anything Trump can do to save it. The Fed and other central banks have now buried us so deeply in debt that the debt will suffocate economic growth for decades to come unless mountains of it are written off, which is not possible without a crash. It could have been done in 2008 by simply letting the bad banks fail and letting bad debt get written off the way it is supposed to; but, instead, George Bush and then Obama decided it was best to bail out banks and pile up more debt to try to save us from the pain.
At the time, I was writing that the best thing we could do would be to face the pain right away and start fixing the underlying problems and that by pushing the pain off, all we were doing was assuring that the pain and destruction would be so much worse by the time it overwhelms our ability to keep shoving it forward. Everyone in congress has known and said for year, “we’re just kicking the can down the road,” and I think the end of that road is very near.
So, it’s going to crash with or without Trump. Even if his stimulus plans make it through, they only work by creating even higher mountains of debt. It’s just another ENORMOUS kick down the road. They would stimulate things for a few years, and then we’d face an additional $10 trillion in national debt (if they worked).
As for retail, from what I have been reading, the losses by Brick and Mortar stores are almost entirely due to people switching to online purchases, especially via Amazon, which has no stores. So, there are still currently fairly decent retail sales, but people are not going out to shop. That’s as far as the Fed and the experts seem to be able to see.
You are right on in seeing where I am going with stating this is a retail apocalypse. The closure of those stores, which has barely begun, will create huge job losses at this stores compared to the small number of low-paying jobs that Amazon adds and that some of these retailer add in their online divisions, given that Amazon now uses mostly robots to warehouse and gather together its merchandise.
But what you and I are foreseeing down the road is the huge cascading effect for restaurants and everything else around those stores that are closing. When anchor stores go out, then smaller stores have a lot fewer customers milling about, so they go out. When fewer people are in the mall, the restaurants in and around the mall go out. When fewer people are shopping (until recently a huge entertainment for people), there is less driving and so maybe some gas stops go out of business. Because this appears to be a paradigm shift as a younger generation that grew up on computers changes shopping habits, it could be huge culturally. Depends on how far it goes; but given the number of stores that have been announced for closure in the past year that will now be starting to close up, it looks like the shift has already gone very far.
So, what I am talking about is what I don’t hear others saying so much. They say that retail is still doing OK because the sales lost in the brick-and-mortar stores have all shifted to online, so consumers are still buying just as much. That doesn’t show any foresight on their part. As usual, I’m looking at what the trend means for how the dominoes down the road are going to fall in cause-and-effect, and I see no way (just as you see now way) that this doesn’t create additional store closures by the smaller companies and surrounding businesses.
That’s a cascade of events that will easily take five to ten years to play out because 1) The promised store closures now are scheduled over the course of this year and the next 2-3 years. I suppose in part because some leases have to be honored and because stores can only work so fast to get themselves through this transition, etc. 2) The smaller stores around these anchor stores won’t start to feel until the anchor stores are closed, so they’re a second wave, and they will do all they can to hang on; so it may take another 1-2 years for their closures to become serious. 3) At the same time, the malls will be seriously hurting from declining rents in the anchor stores, so malls will start to fold while the smaller stores are trying to figure out how to survive the apocalypse. 4) surrounding restaurants MAY figure out how to hold on a little longer because people may still go to those places for entertainment even if they are not shopping, but diminished traffic certainly has to hurt them.
I think two years from now we’ll really be feeling the pain of this badly with lots of boarded-up shops, and that the pain will take, at least, ten years before towns have started to figure out ways to reinvent themselves; but there are likely to be a number of ghost malls hanging around.
That’s why I pulled out the word “apocalypse.” With so many stores closing down, the run-on effects to other stores has to be huge because these big stores have always been the main shopping magnets. Maybe malls will quickly find a way to reinvent themselves and keep people coming for other reasons, but I think it will take awhile for people to figure out what it takes to do that.