We Just Broke 2008's Record For The Fastest Economic Unraveling!

Tyler Durden's picture

Submitted by Thad Beversdorf via FirstRebuttal.com,

In my last piece I provided a technical analysis that signaled we are entering the first stage of a bursting bubble that we’ll call the Fed Bubble.  Now while I do believe technicals provide good insight to the economic landscape I see them as a necessary rather sufficient qualifier.  In order to be truly confident that our technicals are providing an accurate story we need to understand the fundamentals behind the charts, as we often find the engine light comes on due to a loose wire rather than a problem with the engine.

The final Q1 GDP revision was just released and we saw that GDP has again missed expectations by such a large margin that 2015 is another write off for a 3% growth year.  Almost comically we heard the same excuses we got last year.  “Weather was wintery and next year is going to be the turnaround year”.  So in order to explain to these supposed economic and market ‘experts’ who seem wholly incapable of understanding economic and market forces with any sense of accuracy, let’s run through a few fundamentals.

I want to hone in on the category of consumer spending that is first to go away so that we may capture the first signals of a consumer spending pull back.  A good proxy for this is the Johnson Redbook Chain Store yoy sales.  This captures the consumer spending taking place at large department stores (Macy’s, Kohls, Walmart, Kmart, etc).  This is going to be where the real discretionary retail spending takes place, as in do I have enough space on my credit card for that sassy blue dress and groceries or just groceries?  And don’t think that is just a theatrical example.  I remember the days of asking myself those very same questions (ok maybe not the blue dress but you get the idea).  That is just real life here in the US (and Canada for that matter).

So this category does well to target the true discretionary spending.  Now if the chart trend appears strong or even flat then we can be confident consumers have not yet pulled back on even the most discretionary of items and so any variations in the overall spending patterns are likely not worrisome.  However, if we see a sharp pull back here it is indicative that a downturn in the overall spending trend is likely substantive rather than nuance.  Let’s have a look.

Screen Shot 2015-04-30 at 12.55.01 PM

What we find is that over the past 6 months we had a tremendous drop in true discretionary consumer spending.  Within the overall downtrend we do see a bit of a rally in February but quite ominously that rally failed and the bottom absolutely fell out.   Again the importance is it confirms the fundamental theory that consumer spending is showing the initial signs of a severe pull back.  A worrying signal to be certain as we would expect this pull back to begin impacting other areas of consumer spending.  The reason is that American consumers typically do not voluntarily pull back like that on spending but do so because they have run out of credit.  And if credit is running thin it will surely be felt in all spending.

But one chart doesn’t a story tell, and so we must continue in our quest to determine whether or not we are on the precipice of another crisis.  Another early indicator I like to look at is wholesale trade.  If any sector has its finger on the pulse of the consumer it’s the wholesale/distribution sector.  These guys are constantly talking to retailers to gauge where the consumer is at any given time.  So let’s have a look to see if wholesale trade is giving out any clues.

Screen Shot 2015-04-30 at 1.54.30 PM

Currently we find ourselves on the bottom of the latest peak to trough draw down which has given up more than $100B in wholesale trade.  Interestingly we should note that the last time we saw a $100B peak to trough draw down was between June 2008 and January 2009.  However, while it took 7 months to give up $100B in wholesale trade during the Credit Crisis, we’ve just done it in only 4 months.  What this means is that the wholesale trade sector has recognized what the chain store yoy sales chart above depicts, namely that the US consumer has begun to max out.  This is further supported by the inventory levels as per the latest GDP print, which made up 1.24% of the .2% print (wait doesn’t that mean then…. yes you get it).

If I haven’t convinced you yet that we are entering the final phase before the Fed Crash well let’s carry on.  Again, we’re looking for early indications as to what we can expect in output (economic activity) going forward.  So why don’t we have a look at manufacturing new orders to gauge what’s going in the pipeline because that should tell us how much output to expect over the rest of this year.

Screen Shot 2015-04-30 at 6.10.06 PM

The above chart depicts an ugly story if we’re hoping for an increase in output with just 1 of the past 7 months having had positive growth in new orders for US manufacturing.  That is something we simply have not seen before, not even during the second half of ’08 and all of 09 in the darkest of period of the Credit Crisis.  That fact alone should send a shiver down your spine.

Now it’s not like any of the above just happened yesterday so why is it that month on month and quarter on quarter we continue to hear that “well we failed again to reach the highly touted expectations for economic growth but all the signals are there for next quarter”?  Shouldn’t we be hearing that there has now been a real downward shift in what was already a flat lined economy at best?  Yes of course but unfortunately the media refuses to do its job as challenger to the status quo and our policy making economists are frauds.  They are nothing more than puppets for the global powers that be.  And the longer they can keep us from the truth the more well positioned they can be for the inevitable collapse.

But that doesn’t excuse we the people for so readily accepting the Fed’s extreme view that the US plummeting economy equates to “transitory weakness”.  Although in fairness, we are hearing the economic news with the backdrop of a scorching equities market and so we kind of just go along with the Fed’s extreme message because it seems harmless enough so long as the market is still roaring.   The same thing happens in all bubble cycles.  That is, the Fed denies there is a material problem up to the point that they are scrambling to convince everyone that either it was impossible to see it coming or that they actually had warned everyone but it went unnoticed.

Have a look at the following excerpt from the March 28, 2007 Bernanke Economic Outlook, before the Joint Economic Committee (US Congress) and tell me if it sounds familiar despite you likely never having read or heard this previously.

“Business spending has also slowed recently. Expenditures on capital equipment declined in the fourth quarter of 2006 and early this year. Much of the weakness in recent months has been in types of capital goods used heavily by the construction and motor vehicle industries, but we have seen some softening in the demand for other types of capital goods as well. Although some of this pullback can be explained by the recent moderation in the growth of output, the magnitude of the slowdown has been somewhat greater than would be expected given the normal evolution of the business cycle. In addition, inventory levels in some industries–again, most notably in industries linked to construction and motor vehicle production–rose over the course of last year, leading some firms to cut production to better align inventories with sales. Recent indicators suggest that the inventory adjustment process may have largely run its course in the motor vehicle sector, but remaining imbalances in some other industries may continue to impose some restraint on industrial production for a time.

 

Despite the recent weak readings, we expect business investment in equipment and software to grow at a moderate pace this year, supported by high rates of profitability, strong business balance sheets, relatively low interest rates and credit spreads, and continued expansion of output and sales.”

Sound familiar??  It sure as hell does!  This is exactly what we are being told now.  Inventories are up, business spending has slowed, Capex is down but despite all of this recent economic weakness the Fed (and all mainstream economists) expect moderate growth this year.  Additionally that the economy will be supported by high profitability, strong corporate balance sheets and low interest rates.  Absolutely mind blowing how similar the storyline was back in March 2007 to today’s storyline.  Let’s see if we can’t find some other similarities.

Screen Shot 2015-05-01 at 1.15.30 AM

Now remember 2007 was just a precursor for the real wealth transfer that took place in H2 08. But as you can see in the above chart while the two periods depict very similar market movements, 2015 has generated the same pattern in a much more accelerated time frame.  From this chart and the excerpt above I have a couple points.  First is that we cannot listen to the Fed or any mainstream economists because we know they will be the last ones to realize or at least to acknowledge that a severe problem exists.  So please don’t ever think things are ok because you’ve heard it so from Stevel Liesman or some other clown pretending to be an economist on television.  The second point is that according to the excerpt above from Bernanke’s 2007 Economic Outlook, the fundamental landscape directly ahead of the Credit Crash appeared almost identical to what we are experiencing here in 2015.  I would caution you not to quickly write it off as just a coincidence.

If you take the technical piece I wrote a week ago in conjunction with this more fundamental analysis, the economic storyline describes a precarious environment for equities certainly, but for our general quality of life too.  If things do breakdown as they did in 2008 the pain and suffering will be much worse this time around.  The reason is that median net worth is down 40% from where it was just before the last collapse.  U6 unemployment is already twice what it was prior to the last downturn.  Debt levels, both individual and public are at record highs.  All of that means a much worse bottom than last time.

But probably the most disheartening aspect of the coming reset is that almost every retiree or soon to be retired household has just about 100% of their nest egg currently in equities.  This means a significant market crash will create the largest single wealth transfer in the history of the world.  I cannot stress enough that this is the time to be exiting equities altogether.  There is very little if anything that could push equity valuations higher right now and a strong likelihood for markets to revert back in line with the still very broken economy.   Protect yourself and preserver your family’s interests.

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mt paul's picture

back in 2008 the Fed lent out trillions to any corporation that could fog a mirror at .01 of one percent interest...basically that works out to 100 $ interest  for a million dollars loan..

must be nice, a million bucks for 100 $ a year...

might be time for the Fed to re up

Deathrips's picture

Paul,

 

You forgot if the banks default on that loan (pocket it), the taxpayer un-pickets up the bill.

 

I want that deal. Borrow a million, pocket a million....sign the bill to someone elses room.

 

RIPS

nope-1004's picture

Agree.  Is anything in nature too big to fail?  Too big to die?  Too big for reality?

F'n bankers.  White-collar crime in the name of "saving the financial system".  Except, the financial system keeps asking me to pay:  higher fees, higher taxes, higher health care, higher house price, higher utilities.  So I say fuck this cockroach infested financial system.  Let the bitch fail.

LawsofPhysics's picture

I wonder when, if ever, we will execute those "arsonists" Timmy?  Still can't figure out how he got away with publishing that book.  Some pretty damning stuff in there.

nope-1004's picture

Self absorbed narcissist, publishes a book about himself that no one reads.  Maybe that's where all this deflation is coming from:  Falling Bernanke and Geithner book prices, as no one is buying them.

 

Deathrips's picture

And this is including the fed buying spree called channel stuffing?

 

RIPS

 

*the fed doesnt deserve caps anymore...

Oh regional Indian's picture

Super-inflated baloons tend to burst, not deflate gently.

This is so common sense 101 that you have to admit to yourself that th epeople in charge know EXACTLY what they are doing.

Meanwhile, for the trippers, Native American Flute and Drums: Sequence 12

https://youtu.be/pNYSDv3EpW8

VinceFostersGhost's picture

 

 

Anything but TARP2 , we couldn't afford it then and we really can't afford it now.

 

You don't have to fix it, just let it die.

Karl-Hungus's picture

Id like to see a chart that shows if it is consumers who are maxed out in their credit/debt that's available to them, or if at least a decent % of the population is finally starting to wise up and not use it. I have 45k available on 3 cards, and I have a zero balance on all of them. I use one that I get 5% cash back on groceries and another I get 5% on gas, which I pay off as soon as I make the purchase. I refuse to go into debt to buy stupid shit I don't need, I'm not playing their bullshit game any more, ever. If people do what I am doing, their Ponzi runs out of steam, as it requires constant new debt creation to survive.

rwe2late's picture

 One major drawback to fighting the Ponzi by using cash-back credit cards

is that the banks charge a hefty fee to the retail outlets for using a cc payment.

That cost, of course, must be passed along back to  ...

Unfortunately, those with lower credit ratings and those who forego using cc

(as well as those getting the cash back)

effectively subsidize the cc 'cash back' through higher prices.

The banks get a hefty fee on all transactions as well as TBTF gov't handouts.

It is not so easy to escape the matrix.

TheFutureReset's picture

Agreed. Gimmicks, all of it. Best to withdraw from banks in general. Bitcoin gives you the same utility of a cc and more, plus it's not beholden to bankers. The value of bitcoin should move inversely to the collapsing equity and forex markets. Having a $1000 in bitcoin today could be your families lifeboat in the next couple of years.

Tarzan's picture

Well, that's exactly what they're trying to do, crash the current system!

"these supposed economic and market ‘experts’ who seem wholly incapable of understanding economic and market forces with any sense of accuracy"

They are globalists who know that the dollar and the ideals of our constitution (along with nationalist ideals elsewhere) stand in the way of their agenda. They are destroying both from within to make room for a global government controlled by a financial system with a world wide cashless currency. They are openly doing exactly what they've planned in secret, All the while we complain about what a horrible job they're doing fixing our financial system!

Why do people continue to think we're dealing with buffoons?  How is it they continue to baffle anyone especially those who write for these blogs? 

If these rats are doing exactly what they've planned while coordinating to baffle and confuse a majority of the planet into thinking they're just incompetent, they're doing their very best to fix an out of control economy, a problem they purposefully created, who are the real buffoons?

I find it hard to believe the writer of this article doesn't know this! I wonder if much of the hand wringing by so many Zero Hedge articles about the incompetence of those in charge are not simply part of the plot, disinformation to keep us confused?

These people are Ivy League Graduates.  Even Mao Zedong was a Yale Graduate and member of Skull and Bones. THEY'RE NOT DUMMY'S,  THEY'RE EVIL GENIUSES and DOING IT ON PURPOSE,  DUHHHH!

So next time a Tyler comes out with another story about the dummy's at the Fed, just remember who the real dummy is.....

HungryPorkChop's picture

In todays world this is very bullish news. I fully expect some random country to cut interest rates another 0.25 basis points or talk about QE over the weekend.  The market will be up 100 points on Monday. 

Time to go long on ink, paper and ultra high speed printers!  What could go wrong?

ZH Snob's picture

look for leveraged speculation to be counted in GDP soon.

TheFutureReset's picture

Or hookers and blow like the UK. 

Weaponized Innocense's picture

U can almost hear the crickets on a million for a hundred bucks these days!
See the desert of the jungles existence!

doctor10's picture

"ObamaCare";

It was supposd to have  recollateralized the derivative house of cards by hustling another 30 million paying bodies into the bankers service-but  that hasn't materialized. "can't get blood from a stone"  There are good reasons 30 million people were uinsured. Waving a wand can't change that.

Obamacare's  increased costs has sucked out discretionary spending from all corners of the service economy, in the process hollowing out previously "good" collateral.

Its complete repeal by MN tonight would lessen the October Crash on the horizon triggered by lack of discretionary spending income; it would also bolster some of the collateral dykes a bit.

But absent a productive economy since about 2006, the collateral shortage on the horizon is a tsunami at this point.

The banks, fueled by government Constitutionally unrestrained, have managed to crap the world.

Handful of Dust's picture

I was forced off my private plan and had to pick an Obama/Piglosi/Reed approved plan that half my doctors are not on and my deductible doubled.

g'kar's picture

You are one of the lucky ones.

VinceFostersGhost's picture

 

 

Thank goodness we all now have free healthcare!

 

Next?

GMadScientist's picture

"might be time for the Fed to re up"

The real problem with opiates is the tolerance build-up...after awhile, it doesn't matter how much you shoot, you're still going to be writhing in pain.

JRobby's picture

They will keep it afloat at all costs. QE X on deck for the foreseeable future, and it doesn't benefit consumers at all.

It is all artificial now. It stays up until it doesn't.

Consume credit contracting rapidly in 2015. That agrees with consumer confidence numbers.

http://www.moneyandmarkets.com/consumer-credit-trouble-looms-70890#.VUTb...

sbenard's picture

Calamity is certainty! Plan and prepare accordingly!

Mr. Bones's picture

maybe not the blue dress but you get the idea

 

You can be honest, we're all friends here.

Consuelo's picture

Ode to Billy Jeff...

 

 

GMadScientist's picture

Support group?! I thought this was a get rich quick seminar.

Ham-bone's picture

We might as well include an update on manufacturing jobs in America...not pretty and that's before we really see the impact of the strong dollar or the slowing global economy...this is likely as good as it gets and down from here...

http://econimica.blogspot.com/2015/05/manufacturing-recovery-or-manufactured.html

LawsofPhysics's picture

Long black markets and sharecropping.  Those charts make it very easy to see when the central planners took over and the last remaining hint of price discovery was destroyed.  Good luck to them with that linear slope and thinking in an exponentially complicated system.  Turns out the dinosaurs were more evolved after all...

Oldwood's picture

We don't need no stinking manufacturing jobs! We are all going to live the good life as a salesman or just sit at home and trade coupons on the way internet.

Jonesy's picture

Oh boy, this can't be good for the Jews.

VinceFostersGhost's picture

 

 

That say they are, but do lie?

Osmium's picture

Might be enough to send the markets to all time highs!

Bryan's picture

There you go with that F-word again.  Wasn't that word banned a while back?  Or maybe they renamed it Funny Mentals.

LawsofPhysics's picture

but bad news is good news or something...  ...no fucking spoon, period...

get to know your neighbors, you might need each other soon.

g'kar's picture

"get to know your neighbors, you might need each other soon"

 

I know which neighbors are fat enough to be rendered into diesel fuel when time get tough.

AIIB's picture

If things ever get real bad, once could probably mow down a swat team line & have enough to run a tractor for a year.

g'kar's picture

I guess I better get a diesel vehicle before I "start-a-rendering"--doh

GMadScientist's picture

Some in front of firing squads, some behind a plow.

TheRideNeverEnds's picture

Best reason I've seen all day to buy moar stocks.

Barnaby's picture

Cyclical. Just like in 1996-1997: $100 spent on your small business will yield $125 in this economy. It takes money to make money, but brother, it's out there. Keep fair and make your service shine.

GMadScientist's picture

Aren't you that guy selling AZT cocktails from Dallas?

mt paul's picture

5x-10x my costs

or it's not worth my time

 

40+ yr craftsman....

Dr. Engali's picture

Three words:

Mark to fantasy.

That is all.

LawsofPhysics's picture

Technically, mark to "model", but yes, the model is pure fantasy.

Anusocracy's picture

Mark to an insane mind's concept of reality.

GMadScientist's picture

Mark to whatever keeps me on this side of prison.

SERReal1's picture

I am already seeing a trend similar to this in my line of work. Orders are slowing, payroll is being cut, but the inventory is up since we purchase based on historical trends. At this point, I cannot see purchasing anymore inventory for the balance of the year.