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Guest Post: More Evidence That The Economic Peak Is In
Submitted by Lance Roberts of Street Talk Live,
Recently I posted "Economy In Pictures: Have We Seen The Peak?" which was simply a series of charts including GDP, wages, spending, production and employment from which you were allowed to draw your own conclusions. The point of this exercise was to allow your brain to juxtapose visual data to the ongoing mainstream diatribe of economic recovery. I stated then that:
"The general mantra from mainstream analysts and economists since the first of the year is that the 'economy is set to finally turn the corner.' The premise of the assumption is that the Fed's continued monetary actions, and now specific targeted goals of suppressed inflation and targeted employment, is going to push the economy into 'escape velocity.'"
Since then there has been more confirming data showing that whatever rebound was to be had, economically speaking, from the recessionary lows has most likely been seen.
RETAIL SALES
The first two charts show retail sales. The first is the ISCS-Goldman Sachs weekly retail sales data smoothed with a 3-month average of the annual rate of change.
The second is the Census Bureau's official retail sales data.
Notice that both of these data trends peaked in 2011-2012 which coincides with the peak in overall personal consumption expenditures seen in the previous report.
INDUSTRIAL PRODUCTION
Even though I addressed production and manufacturing previously; the latest industrial production and capacity utilization reports confirm the data trends I showed in the composite manufacturing index.
Notice that, as opposed to all of the other data trends, industrial production and capacity utilization actually peaked in 2010 versus 2011.
CPI
The latest release of the consumer price index showed a decline to an annual rate of just 1.5% down from the previous reading of 2.0% last month. While there is much debate about the detachment of CPI from the real cost of living for the average American what is important is its historical relationship with economic growth. When an economy is growing; inflationary pressures rise. It is these increases in inflationary pressures that the Federal Reserve monitors closely to adjust monetary policy to theoretically control the rate of inflation and economic growth. (I say theoretically because history shows that the Fed's monetary interventions have been primarily responsible for the economic booms and busts. That is an article for a different day.)
The chart below shows the historical annual rate of change in CPI and real GDP.
Not surprisingly, sharp increases in inflationary pressures which, not surprisingly, not only lag economic growth but stall it. As shown above peaks in CPI have been leading indicators of economic contraction historically. While it remains to be seen whether the latest peak in CPI is a forewarning of economic contracting it clearly confirms that economic activity for the current cycle has peaked.
COPPER
Out of all of the metals copper is the one metal that has the most direct tie to economic activity. It is either a direct component of or used in the production of literally everything. Like energy, copper is directly affected by the pace of economic activity. The chart below shows the annual rate of change in copper spot prices versus GDP.
The most recent plunge in copper prices, like it has previously, has coincided with a peak in the current pace of economic activity.
CONCLUSION
Evidence continues to mount that we have seen the peak of activity for the current economic cycle. The implications of such an occurrence are broad and suggests that the Fed's liquidity driven interventions, and zero interest rate policy, may have well seen the end of their effectiveness.
The problem for the financial markets is twofold. First, expanding economic activity is what drives revenue growth and expanding profit margins. The chart below shows that the annual rate of change in operating earnings peaked in 2010 along with economic activity.
Secondly, the financial markets have risen under the belief that the Fed will continue to "do whatever is necessary" to support the markets and the economy. However, to date, we have seen little evidence of "other policy tools" since the financial crisis began. In fact, outside of the Fed's intervention programs, there has been little evidence of an organic economic recovery. Therfore, if the Fed, as I suspect, is closer to the bottom of their monetary magic toolbox than currently believed - it would put the economy, and the financial markets, into potential jeopardy.
I concluded last time by stating:
"Regardless of your personal views about the economy, the political environment or the markets - what is important is to separate emotion from investing. While the Fed's continued liquidity injections have sharply boosted asset prices in recent months - the bond market, as shown in the chart below, has continued to show a preference of safety over risk. With rates plunging in recent weeks the indictment from the bond market concurs with the longer term data that the economy remains at risk.
While the stock market continues to ramp up due to the Fed's interventions the disconnect between the markets, and the real underlying economic fundamentals, will ultimately resolve itself. I am not suggesting that a crash is looming as none of this data suggests that a recession is imminent, however, the data also does not support the mainstream view that the economy is set to accelerate or that the markets are entering into the next great secular bull market.
The reality is that the economy is continuing to muddle along through the greatest monetary experiment in modern monetary history. However, what is becoming more readily apparent is that the impact from these ever expanding programs continue to support Wall Street and the financial system but fails to improve the diminished state of Main Street."
That view remains the same.
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The economic peak happened in the late 60s. From the early 70s on we just borrowed it from the future.
that was right about the time LBJ's "Great Society" got revved up
that was right about the time LBJ's "Great Society" got revved up
revisionist history at its best. actually, it's when the tax rates on the top 1% got cut in half. maybe that had something to do with it.
How would the government stealing less hurt the economy exactly?
most of money, land, resources are already owned by governments. They just lease it to you, so they are not stealing, they are calling their assets back.
yeah, that house you "own"...you still pay real estate tax to government.
Such vicious, vile, atrocious unfalsehoods!
double plus ungood!
Because low tax rates kill business activity?
Only in Soviet economics books.
It's hard to break out of that "class system" mentality BK. I can understand that. I know you were educated into a certain perspective, but know that most of your "teachers" and the institutions they worked for had an agenda, you need to understand this if you want to move towards the truth.
HaHaHa Moron, you want to know the fastest way to make money, tax people then steal it.
http://www.dailymail.co.uk/news/article-2310591/EU-budget-fraud-4BILLION-12-times-higher-previous-figure.html
After the Jim Crowe democrats finally capitulated on Civil Rights 1963 (100 years late), LBJ said, regarding creation of the welfare state: "We gotta get the n*gger vote."
Under Jimmy Carter, the top 1% earners only paid 19% of all tax revenues because their the tax rate was >70%.
Today the top 1% pay 39% of all tax revenues because the top tax rate is less than half Carter's rate.
Tax revenues and tax rates are two different things. Dumbass.
Exactly. We were told we cold have Guns and Butter rather than Guns or Butter.
The same lies are perpetuated today that deficit spending is "investment" that must be made and is therefor entirely the responsible thing to do.
Nixon understood it before anyone else did, and opened up China to prolong our orgies a liitle longer. Now What?
Perhaps we could find new markets under the sea? Are ya ready kids?
go work the chinese factory owners...that's what.
Yeah, and I said be careful what you wish for making 1.2 billion more consumers.
There is no future.
if the fed's "effectiveness" is gone there is nothing to stop the ensuing freefall.
"Fed effectiveness" = Oxymoron.
Look at the effectiveness of how "debt is good", and "more debt is more good":
http://www.treasurydirect.gov/kids/kids.htm
The next CON has not materialized yet
I think the fed has been very effective. They have held this thing together long enough for insiders to escape and the police state to get systems in place.
Are these G20 guys really sitting around a giant roulette table? That is amazing.
http://www.bloomberg.com/news/2013-04-18/g-20-draft-affirms-commitment-t...
red
RED!!!
I bet ALL gold of Cyprus on red! - Angela Merkel (danke again to Mrs Schniztel & Mr. Hans!)
Genios, genios, genios!!
"They" don't give a crap about Main Street. "They" think its destruction is amusing.
They will when their waiting their turn in front of the guillotine or masonry wall. hujel
On of the outcomes of a nice road is roadkill.... They view it as a cost of doing business.
Let them( Main Street ) eat Quantitative Easing, or IPads.
This has been a crazy week.
It is now being reported that a large fertilizer plant near Waco, TX has exploded tonight. The following images on Twitter show an enormous blast:
https://twitter.com/search?q=west+tx
http://instagram.com/p/YOiNQYqEVu/#
https://twitter.com/Breaking911/status/324704479939293184/photo/1
Krugman is pissing himself. This is massive stimulus.
The biggest fertilizer plant was in D.C. I thought?
Dr. Copper says things are not well.
Gold and bonds dipping are way ahead of the cotton candy equities.
Gold is signaling a problem? Hum, seems to me that the Jewish bankers see a problem, of their own making and now try to take Gold down for their own use (Comex explosion). I see no problem with Bullion in fact; Silver Eagles have a $5 premium per ounce. Ben Bernanke better find himself and his Jewish friends a place to hide because when this goes, people will be looking for that liar to hold him and his banking friends accountable! Now that’s a problem.
Peak manischewitz.
The tribe will exterminate or put in FEMA camps all those who are not members of the tribe.
the trans-russian Kahzar tribe.
The actual semites who are in Palestine will be exterminated. By the non-Jews pretending to be jews.
Peak bullshit. Peak Hope and Change. Peak give a shit. The entire globe is a turd swirling down the crapper and we have a birds eye view, last man out the door please light a match so we can get the stench out of the room.
there is NEVER peak bullshit. I'm long on bullshit till the cows drop 'n' die, forget come home.
I told you that March-April was the top last year. Economic prognostications for less than 1 year are infallible. The next inflection point is 5/1/2013. The bottom is Oct.
There is a deflationary wind blowing...and its about to turn into quite a shit storm. This weekend may become one of those weekends that I recall in 2008. Full of speculation and angst, waiting to see what news Sunday evening will bring. If we sell hard into close on Friday we know its here. Just not sure "what" it is yet.
the winds of shit!!
The end of the Musclecar was the end of America!
The muscle car died in 1973. Oh sure, you could still buy a Monte Carlo, or a GTO, or a Camaro, or even a Malibu/Chevelle, but the new car was the Chevette- ugly, underpowered, and cheap, cheap, cheap. It's all about oil, my friends. 1973 was the first shock of an inevitable trend. I just bought a mule. Draft animals- the wave of the future.
Two words: Chevy Vega.....
Two more: Llamas and Alpacas. Mobility and yarn....
Ahhhh... the Vega.
Theoretically, a good car for the times. Small, light, decent gas mileage, fun to drive (with a stick). Better looking than a Pinto. Very attractive cousins: Monza, Sunbird, etc.
Alas, its defining feature was the engine: Overhead cam (good idea), aluminum engine block (good idea), unsleeved (bad idea), fitted with cast iron pistons & rings (abysmally bad idea).
Worn out in 20,000 miles.
But one man's catastrophe is another man's opportunity! I bought a 1977 Monza Hatch w/ blown VEGA motor & 4-speed w/ 39,000 miles in minty condition for just $500 (in 1982).
Long story short, I sleeved & rebuilt the motor, added aluminum pistons, shaved the head, removed EGR, etc. DIY so only about $700 for all that.
Ran like a raped ape. 33mpg (Excellent for the era). I put 140,000 more miles on it. Sold it o my sister. She put on another 20,000 & sold it to my dad. He put on another 15,000.
in 1992, he sold it to a neighbor kid w 230,000 miles on it - still running great (only 2nd clutch!!). Don't know what happened after that.
Raped ape with a broken leg.
Mopeds, bithcezz.
I was surprised the other week to find Europe already has non-hybrid cars that get 50-60-70 MPGs, but cannot get them approved for use in the USA. There is a long list of them. They are basically 4 cyl turbo gas/diesels, etc., nothing exotic.
Speculation is that we cannot get them in USA because they get such good mileage/gal tax revenues would go down dramatically to the US Gov. If the enviro-wackos actually believe the planet needs saving then why are they not lobbying the shit out of Pelosi, Gore and Obama to fix this RIGHT NOW?
us gearheads have known about this for a long time. This isn't new.
Motor tech is one issue (EPA). but safety mandates (NHTSA) like: airbags, ABS, 5mph bumpers, etc would have to be added to those econoboxes
Fed safety crap = more $$$ and more weight --> less mpg
Also, gearheads create versions of these cars using the grey market.
You can't buy the efficient car here, but, in most cases, you CAN buy the front clip (half) of the car from a european or japanes wreck & ship it. Parts is parts, as they say.
Then, buy the inefficient, USA-spec version & swap everything under the hood. Fits right in.
I saw a nice 1999 Landcruiser with a Turbodiesel 6 swapped in. 26mpg instead of 10. Pretty cool.
Unless you live in an emissions state.
Debt Slave,
Only if they are not still in your stable.
Gold and other PMs going down is not just deflationary but a sign that QE is failing. Will we soon see a huge crash in global stock markets? If so, what does the Fed do then other than continue the printing madness?
The FED's QE is about getting the police state in place. I say the economy will limpo along until a national ID card is issued (under the guise of immigration reform). Once we're all tagged, bagged and gagged, then they will let the wheels fall off.
More QE . Bigger QE. Spectacular new levels of QE are coming. There's no turning back.
Think that's right. There are more trix in the bag.
The USA will be "turning Japanese" and double or triple the bet. That's run for the hills time.
Sorry Lance, but I really don't need "More Evidence That The Economic Peak Is In" so I give this piece a "Meh, 3 stars".
"Hi everyone. My name is Schmuck Raker, and I'm a Jaded SOB."
The end must be coming because I just read that Ford and GM are going to coordinate design of a 9 speed automatic transmission.
What? I thought. The two main colluders in the gas-guzzler car design consortium planning to make a 9 speed automatic. An their reasoning is " its more fuel efficient! "
I mean what have the CEO's of these companies been smoking, This is heresy against the oil companies. Not to forget they are only 10 years behind in this design idea.
Everywhere one looks we see corruption, cartels, collusion and obscuration.
Maybe the boards of these two once huge companies see their irrelevance and the need to change direction. They are abandoning their cosy relationship with big oil simply to survive. The end is near and the sooner it comes and we get the reset the world needs the better.
"I mean what have the CEO's of these companies been smoking, This is heresy against the oil companies. Not to forget they are only 10 years behind in this design idea."
Not quite.....
Land Rover has announced that it will demonstrate the world's first nine-speed automatic transmission for a passenger car at the 2013 Geneva Motor Show. The ZF HP9 9-speed gearbox has a higher top gear in a more compact design, in order to fit in the same space as conventional 6-speed transmissions. According to Land Rover, it will also provide smoother gear shifts with improved accelerations and lower fuel consumption.
ZF has been working on the HP9 since 2011, but has been a bit coy as to what car maker it was intended for. Now it’s revealed that Land Rover is both the customer and lead partner for the new gearbox. Intended for use in front-transverse mounted engines, it’s based on ZF control technologies originally developed for the ZF 8HP gearbox.
By increasing the number of gears from the standard six to nine, ZF has produced a ratio spread of 9.3 with small ratio steps. Where a conventional 6-speed gearbox makes downshifts sequentially, Land Rover and ZF claim that the 9HP glides between gear changes almost imperceptibly. In addition, the lowest ratio is lower than that of a 6-speed and is more suitable for off-road use and steep inclines.
Also:
The ZF 9HP is a nine-speed automatic transmission, designed but not built by ZF Friedrichshafen AG subsidiary ZF Getriebe GmbH in Saarbrücken.[1] As a front-transverse transmission, it will debut in front-wheel drive and All-wheel drive vehicles. ZF touts the new design as being able to save an average of 16% in fuel usage over current 6-speed automatic transmissions. Tentative ratio spread is 9.84:1. Transmission will have a torque range between 280 and 480 Nm.[1]
The 9HP is masterfully packaged and despite the extra three gear ratios is only 0.24 inches (6mm) longer and actually weighs 16.5 lbs (7.5 kg) less than the outgoing six-speed transmission. The compact packaging is achieved by using a number of innovative design features: A new compact hydraulic vane-type pump, two patented dog clutches replacing bulkier conventional clutch packs, and a nested gear set.[2]
Land Rover will demonstrate the world's first nine-speed automatic transmission for a passenger car at the 2013 Geneva Motor Show.[2]
The production of the 9HP will start in 2013 with a unit of 400,000 per year at ZF's Gray Court facility in Greenville, South Carolina.[3]
Also:
Even before Sergio Marchionne took charges, rumors swirled around the idea of Chrysler using ZF eight-speed automatics, also used by makers such as Porsche and BMW, in their SRT8 cars and selected Dodge Ram pickups. Marchionne himself confirmed the selection in 2010, and in 2011, Chrysler revealed that the eight-speed would also be used in the LX cars — backing the Pentastar V6 engine. Charger and 300 got it first, during 2011 (for 2012 model year cars), followed by Ram (2013 model year).
Some sources say it is a ZF design, while others say there has been Chrysler engineering; most likely it incorporate ideas from both companies, though it is increasingly likely that it is a ZF design with “external fit” and minor changes to match Chrysler equipment. In fact, there are three eight-speed transmissions: the 8HP45 (ZF’s unchanged-except-for-case version), the Chrysler-redesigned 845RE, and an upcoming heavier duty model based on the 8HP90. Most of the transmissions used by Chrysler will be made at the automaker’s Kokomo, Indiana, Transmission Plant but some will be built by ZF itself at a new transmission plant in Greenville, South Carolina. Chrysler is investing $300 million in the Kokomo plant. The new ZF facility, the first ZF plant to make car transmissions in the USA, will also make the 9-speed automatic transmission for transverse-mounted engine applications that was presented at the North American International Auto Show (NAIAS) — as will Chrysler, again, in Kokomo. So....not 10 years behind....but behind the Germans anyway.Caterpillar has been using planetary transmissions for 50 years. And hydraulic pump/motor combinations have been used in industry for 50 years also. Ford and GM could have been in the game 50 years ago.
Prices today are meaningless. They will all change according to what we do next! http://www.cecm.sfu.ca/~rpearcea/dontpanic.pdf
There is only one page to your link.
@Mr. Hudson: Don't click on the link. It is a troll!!!! The domain is Chinese. If your Adobe Reader is not patched then you are now infected!!!!!!!!!!!!!!
Yeah, don't panic! Use these:
http://www.mostly-harmless.de/joo.html
"While it remains to be seen whether the latest peak in CPI is a forewarning of economic contracting it clearly confirms that economic activity for the current cycle has peaked."
Do what? Didn't he just say that CPI rate of inflation has fallen? So what peak? By his own definition, there is no harbinger of contraction here. Looks to me like the writer is trying to jam the data into his preconceived narrative of where things are heading, rather than letting the data do the leading.
That would be the peak in 2010, can you read charts? Since then the CPI has been falling along with production and in doing so CONTRADICTS the sell side line that the economy is improving. Talk about preconvictions...
"letting the data do the leading."
Once statisticians use something as subjective as utility in the number set(s) of their data, then data is meaningless.
Compare something relatively unchanged, say like a gallon of gas 50 years ago with it's price today. Or have someone tell you how much more value you have in an iPhone versus a landline of 50 years ago. One is a communication device, the other is an entertainment device.
Governments want to mask the shift of wealth to their friends while keep the poor docile with SNAP cards. It is private sector businesses and employees that are being bled dry. And "data" from government is there to blow smoke up the bumblebee's ass.
STAGFLATION (WHERE WE'VE BEEN) >> DEFLATION (STARTING NOW) >> HIGH INFLATION (DOWN THE ROAD)
So those who stayed liquid and in cash all through this time period, and didn't get scared off by inflationary scares, will be ready to buy the bargains in the deflationary bottom that is coming. And, then prepare and set themselves up for the inevitable high inflation.
A satisfying, overdue reward for some.
All the data is rigged
The Fed will keep printing until they run out of trees in the forests.