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The Perfect Crash Indicator Is Flashing Red

July 30, 2017

The Perfect Crash Indicator Is Flashing Red

What’s the last big toy you buy when things have been good for a really long time and you already have all the other toys? An RV, of course. A dubious thing to own if you already have a house, but when the good times seem likely to roll on forever, why the hell not?

And what’s the first thing you sell when you lose your job and your stocks are tanking? That very same RV. Which makes new RV sales a useful indicator of our place in the business cycle.

What does it say now? Here you go:

Notice the mini-spike in the late 1990s and the major spike in mid-2000s, both of which were followed by corrections. Now note the mega-spike from 2010 and 2016.

And how are things going so far this year? Well, the space is on fire:

‘The RV space is on fire’: Millennials expected to push sales to record highs

(CNBC) – RV shipments are expected to surge to their highest level ever, according to a forecast from the Recreation Vehicle Industry Association.It would be the industry’s eighth consecutive year of gains.

Thor Industries and Winnebago Industries posted huge growth in their most recent earnings report.

Those shipments are accelerating, and should grow even more next year, the group said. Sales in the first quarter rose 11.7 percent from 2016.

Much of the growth can be attributed to strong sales of trailers, smaller units that can be towed behind an SUV or minivan, which dominate the RV market. The industry also is drawing in new customers.

As the economy has strengthened since the Great Recession, and consumer confidence improved, sales have picked up, said Kevin Broom, director of media relations for RVIA.

…click on the above link to read the rest of the article…

Maybe The Recovery Wasn’t Real After All

April 2, 2017

Maybe The Recovery Wasn’t Real After All

For a while there it looked like the US and its main trading partners had finally achieved escape velocity. Growth was up, inflation was poking through the Fed’s 2% target, and most measures of consumer sentiment were bordering on euphoric.

Then it all started to evaporate. Lackluster manufacturing and consumer spending reports sent the Atlanta Fed’s reading of Q1 GDP off a cliff to less than 1%:

And this morning the Wall Street Journal highlighted some recent changes in the yield curve that point towards further slowing:

Flatter Yield Curve in 2017 Shows Growth Concern Lingers

Long-term Treasury yields have declined modestly, while short-term yields have risen.A flattening of the Treasury yield curve in 2017 is a worrying sign for investors banking on resurgent U.S. inflation and growth.

Long-term Treasury yields, which are largely driven by the U.S. economic and inflation outlook, have declined modestly this year, following a sharp rise in the wake of the November election of Donald Trump as president. The 10-year U.S. Treasury yield has fallen to 2.396% from 2.446% at the end of 2016.

At the same time, short-term yields, which are more influenced by monetary policy, have risen in 2017 as Federal Reserve officials have made clear that they expect to continue raising the fed-funds rate through the rest of the year.
As a result, the yield premium on the 10-year note relative to the two-year note—known in the market as the 2-10 spread—slipped Wednesday to 1.107 percentage points, its lowest level since the election.

FIRST QUARTER REPORT CARD
While the yield curve, like all market indicators, is subject to the ebb and flow of investor sentiment, economic data and political developments, a flattening yield curve gets special attention from investors world-wide because it can serve as an early signal of both economic slowing and overpricing in riskier asset classes.

…click on the above link to read the rest of the article…

2016 Debt Binge Produces (Surprise!) 2017 Inflation. Guess What That Means For 2018?

March 12, 2017

2016 Debt Binge Produces (Surprise!) 2017 Inflation. Guess What That Means For 2018?

Just as everyone was finally accepting the idea of deflation and negative interest rates, inflation decides to pay a return visit. In the past day, articles with the following headlines appeared in major publications around the world:

Swiss inflation rises at highest monthly rate in 5 years 

China February producer inflation fastest in nearly nine years 

Year-over-year import prices at highest level in five years 

ECB keeps bond-buying, rates unchanged amid inflation flare-up 

Food inflation doubles in a month as UK shoppers start to feel the pinch 

What happened? Well, towards the end of 2015 most of the world’s major governments apparently got spooked by deflation and decided to ramp up their borrowing and money creation. China, for instance, generated the following stats in 2016:

  • New loans totaling 12.65 trillion yuan, or $1.8 trillion.
  • M2 money supply growth of 11%.
  • Debt-to-GDP ratio jump from 254% to 277%.

In Europe, the European Central Bank ramped up its bond buying program, pumping about a trillion newly-created euros into the Continental economy:

And the US increased its federal government debt by over $1 trillion, presumably spending the proceeds on things that raise wages or increase the demand for commodities.

Since there’s no way for the growth of global production to match this blistering pace of new money creation, the result is higher prices for just about everything. Oil and most other industrial materials are more expensive, wages are rising, long-term interest rates (the cost of money) are up; you name it, it went up in the past year.

What comes after a debt-driven spike in inflation? History is pretty clear on this one: instability, as rising interest rates spook the fixed income markets and rising business costs spook stock speculators.

…click on the above link to read the rest of the article…

2017’s Real Milestone (Or Why Interest Rates Can Never Go Back To Normal)

January 25, 2017

2017’s Real Milestone (Or Why Interest Rates Can Never Go Back To Normal)

Forget about NAFTA or OPEC or TPP or crowd size or hand size or any other acronym or stat or concept that obsesses the financial press these days. Only two numbers actually matter.

The first is $20 trillion, which is the level the US federal debt will exceed sometime around June of this year. Here’s the current total as measured by the US Debt Clock:

To put $20 trillion into perspective, it’s about $160,000 per US taxpayer, and exists in addition to the mortgage, credit card, auto, and student debt that our hypothetical taxpayer probably carries. It is in short, way too much for the average wage slave to manage without some kind of existential crisis.

It’s also way more than it used to be. During his tenure, president George W. Bush (2000 – 2008) nearly doubled the government’s debt, which is to say his administration borrowed as much as all its predecessors from Washington through Clinton combined. At the time this seemed like a never-to-be-duplicated feat of governmental profligacy. But the very next administration topped it, taking the federal debt from $10 trillion to the soon-to-be-achieved $20 trillion. And the incoming administration apparently sees no problem with continuing the pattern.

The other meaningful number is 6.620. That’s the average interest rate the US government paid on its various debts in 2000, the year before the great monetary experiment of QE, ZIRP and all the rest began. When talking heads at the Fed and elsewhere refer to “normalizing” interest rates they’re proposing a return to this 6% average rate.

But of course the last time that rate prevailed our debts were just a little lower. Run the numbers on today’s obligations and you get, well, let’s see:

$20 trillion x 6% = $1.2 trillion a year in interest expense. To put that in perspective…

…click on the above link to read the rest of the article…

Can We Grow Out Of Our Problems If We’re Not Actually Growing?

April 7, 2016

Can We Grow Out Of Our Problems If We’re Not Actually Growing?

The rationale for today’s easy money policies is pretty straightforward: Falling interest rates and rising government deficits will counteract the drag of excessive debts taken on in previous stimulus programs and asset bubbles, enabling the developed world to create wealth faster than it takes on new debt. The result: a steady decline in debt/GDP to levels that allow the current system to survive without wrenching changes.

That’s a seductive, free-lunchy kind of idea — if it actually worked. But as the following chart of historical US GDP growth illustrates, as we’ve taken on more and more debt, each successive stimulus program has generated less and less growth. Compare the past few years to the rip-roaring recoveries of the 1960s through 1990s and it’s clear that whatever mechanism once converted easy money into greater wealth is no longer operating.

GDP April 16

And note that the 2% recent growth on the above chart doesn’t include the revision of Q4 2015 growth to only 1.4%, and the Atlanta Fed’s GDPNow projection of 0.4% growth for 2016’s first quarter.

GDPNow April 16

It’s the same story pretty much everywhere else. Japan, for instance:

Japan GDP April 16

Now the question becomes, how does the US and the rest of the world “grow out of its debt” if it can’t grow at all? Won’t the steady accretion of debt at every level of every society go parabolic in a zero-growth world? The answer is that mathematically speaking, this appears to be unavoidable.

So what will we do? More of the same of course:

OECD Calls for Urgent Increase in Government Spending

(Wall Street Journal) – Governments in the U.S., Europe and elsewhere should take urgent and collective steps to raise their investment spending and deliver a fresh boost to flagging economic growth, the Organization for Economic Growth and Development said Thursday.

…click on the above link to read the rest of the article…

This Is What Gold Does In A Currency Crisis, Canadian Edition

December 27, 2015

This Is What Gold Does In A Currency Crisis, Canadian Edition

Canadian dollar 2015
Gold, meanwhile, has been sucked down with the rest of the commodities complex, falling hard since 2013. But only in US dollars. For Canadians, with their weak domestic currency, gold has been behaving just fine. It’s up 17% in C$ terms over the past two years and looks ready to rally from here:

Gold price in Canadian dollars 2015

Protection from currency trouble is why people own it, and why in the vast majority of places it’s owners are very happy.

Now combine a falling currency with a crashing oil price and the result is a surprisingly favorable environment for Canadian and other weak-currency-country gold miners. Big mostly-Canadian miner Goldcorp, for instance, has seen its production costs fall by almost 20% in USD terms in the past two years, with more to come based on the subsequent cheapening of the diesel fuel required to run its equipment.

Goldcorp AISC 2015

If 2016 plays out according to the script that has rising US interest rates producing an even stronger dollar (and correspondingly weaker currencies elsewhere) the terms of trade for non-US gold miners should become even more favorable. Many of them will report positive earnings comparisons while most other industries are doing the opposite, putting them on the radar screens of momentum traders and value investors who haven’t been paying attention since the last gold/USD bull market ended.

Preppernomics: How to Survive While the Dollar Dies

January 3, 2015

Preppernomics: How to Survive While the Dollar Dies

 

I really don’t like to make predictions.

I’m not Zoltan, the fortune-telling dude in the machine  – you know, the one with the turban who waves his mechanical hands dramatically over a crystal ball and tells you of your future in a heavily accented voice.

But, I think there is something coming in 2015 that we all need to be concerned about, and I wouldn’t be doing my job, writing these posts, if I didn’t warn you.

Some people are going to roll their eyes and call me a doomer. Some people are going to say, “You warned us about stuff all the time, and it hardly ever happens.” Some people are going to revert to cognitive dissonance and say, “Life is too short to worry all the time.”

But there is something very troubling on the horizon, and it’s going to affect us all. From most reports, the outlook for 2015 is not particularly bright.

Economically speaking, the bottom is falling out.

…click on the above link to read the rest of the article…

 

Replacing the Dollar | Armstrong Economics

October 19, 2014

Replacing the Dollar | Armstrong Economics.

1864$10CompoundInt - Table

 

The conspiracy crowd keep swearing the dollar has to collapse and remain clueless that the world is in serious trouble. The impact of debt is far worse outside the USA than inside yet their myopic vision blinds them to the truth. Taxes are so high in Europe and this renders it is impossible to grow the economy out of recession. Debt use to be debt and the theory was it would be less inflationary to borrow than to print. However, after 1971, debt became merely currency that paid interest as it began in the 1860s. The dollar is now the reserve currency and not even the USA can prevent that – there is no alternative !!!!!!!!

It is now MORE inflationary to borrow than to print for now the currency just pays interest. You trade markets and post TBills as collateral. So TBills are now cash paying interest. Moving toward electronic money to collect even more taxes will divide the economy with a greater division between above and below ground. If you could not borrow on government paper, then government could not sell it. So they are trapped in a doomed system that cannot be sustained and the press is controlled to ensure the public remain blinds, death, and dumb about the crisis.

Many insurance companies and pension funds buy government debt for it is considered “riskless”.  We are facing a monumental crisis of tremendous proportion. However, this isNOT about the dollar, it is about global debt and taxes. We have reached the peak of the bell curve that Art Laffer articulated correctly. The higher the taxes the lower the growth and the greater the debt. Rising interest rates expand government debt. Government debt defaulting takes down all pension funds. This is a huge problem. We are not in a position to handle the massive uprising when people wake up and realize they have been really is been living a dream.

 

…click on the link above for the rest of the article…

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