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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:
Housing and all other construction take another big drop as we move into June, following March’s rise:
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:
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:
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.
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.
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 U.S. unemployment rate is now exactly at the nadir it has reached right before almost every recession the U.S. has ever experienced:
And those are just the problems inside the U.S.! 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. By David Haggith
Seeing the Great Recession Before it Hit My path to writing this blog began as a personal journey. Prior to the start of this so-called “Great Recession,” my ex-wife had a family home that was an inheritance from her mother. I worked as a property manger at the time, and near the end of 2007, I could tell from rumblings in the industry that the U.S. housing market was on the verge of catastrophic collapse. I urged her to press her brothers to sell the family home before prices dropped. The house went on the market and sold right away — and just three months before Bear-Stearns and others crashed, taking the U.S. housing market down for the tumble. Her family sold at the peak of the market.
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