What Goes Up, must come down – and it will. That’s a bold way to start an article, I know. Of course, it’s also a simple way to define our economic situation moving forward. Though, I must admit that I don’t like writing about this kind of stuff anymore because too many don’t understand what I’m trying to get at. Still, I feel compelled to write it because I’m frustrated by how evident everything has become and how some still refuse to see it for what it is – and what it will undoubtedly result in. Yes, we will figure our way out of it (eventually) but it’s going to require a lot of struggle on our part before we do. That’s just a historical perspective, by the way.
I know… “Here we go, again!” Right? Well consider this article something similar to how (for years) I’ve been warning about how the U.S. wouldn’t be ready for the supposed threat of China, Russia, North Korea Iran, etc, and only recently has it become abundantly apparent to even the government that I was dead on. Articles like this one are not meant to be a “right here, right now” thing. Instead, they are meant to make you consider where we are going and why we are going there – based on what we are seeing “right here, right now“. They are nothing more than a warning based on projection. Also, know that I’m not the only saying it now.
For example, MarketWatch recently reported that Paul Tudor Jones, a guy widely credited with predicting, and profiting, from the stock-market crash on Oct. 19, 1987, came out and said the Fed faces real challenges amid “the end of a 10-year run” and said that he expects a tumultuous road ahead. I hate to say it but that’s probably just a very nice way to put that.
I’ve repeatedly written about the cycles and how I expect them to show at any moment. I’ve even written about the truths of our economic situation on more than one occasion. A lot of people don’t like what I’ve written on the topic and I don’t blame them; I don’t like it any more than you do. Now, I’ll admit that I cannot tell the future but it doesn’t take a fortune teller to inform you that what goes up, must come down or what goes around, comes around. Besides, the signs are literally all around us now. The problem seems to be that the information is being distributed in small increments that don’t make a whole lot of sense in contrast to the numerous stories of how great everything supposedly is and in the same breathe of trying to encourage you to spend money you likely don’t have. Mix this with an amazing amount of distraction, and it should come as no shock that people are confused when the reality of their situation smacks them in the face. So let’s examine some of the recent updates.
Let’s start with the fact that sales of new U.S. single-family homes fell to a more than 2-1/2-year low in October. While this is big, it really isn’t much in the grand scheme of things. It is, however, a clue. This decline was seen across all four regions, and THAT says something. But why is this happening? Higher mortgage rates are a good place to start but you can’t really examine that entire picture without noticing that multifamily rental projects are booming. So then you have to ask yourself why someone would rent, rather than own. True, the housing market had been on fire for a while but as I’ve written on this before; it’s not the single-family buying these homes – it’s investors, who rent them out. Again, ask yourself why?
Lance Roberts of RealInvestmentAdvice.com seems to agree. Earlier this year, he wrote an article entitled “The Coming Collision Of Debt & Rates” in which he discussed housing. He said, “Rising interest rates slow the housing market as people buy payments, not houses, and rising rates mean higher payments.” This month, he wrote another story that emphasized that idea and said that “With roughly a quarter of the home buying cohort unemployed and living at home with their parents, the option to buy simply is not available.”
Not available? Unemployed? Living at home? The? How can this be true if everything is so great? Unless of course… everything is not so great! I’m going to tell you that the simplest answer is probably the right one. Of course, it’s not like the clues aren’t there for you to see. CBS of all outlets literally just ran a story titled “Millennials are much poorer than their parents” and blame some of their woes on the idea that they have less income and more debt. Simple enough but what I’m confused about is why more people are not taking note of the bigger picture – being “Why?”.
And here’s the bad news; things are likely about to slow down even more. Goldman Sachs said that the U.S. economy will slow significantly in the second half of next year as the Federal Reserve continues to raise interest rates and the effects of the tax cut fade. They said, “Growth is likely to slow significantly next year, from a recent pace of 3.5 percent-plus to roughly our 1.75 percent estimate of potential by end-2019.” That comes from Jan Hatzius, chief economist for Goldman Sachs, in a note to their clients. She said, “We expect tighter financial conditions and a fading fiscal stimulus to be the key drivers of the deceleration.” I think a few more things are in play but let’s go with that. Ultimately, what do you think this is going to do for jobs, sales and so on?
Confused yet? Well, let’s go ahead and factor in the “amazing jobs market”. I know that many are still buying into the U-3 unemployment number, which is currently at 3.7%. Why this number is still in use is anyone’s guess but it’s not accurate. The U-6 is currently at 7.4% to give you some perspective on reality. But a more believable unemployment rate is more likely around 21.2% – which isn’t all that different from when I reported on all this the last several times. I supposed that doesn’t matter. Regardless of which number you want to trust, the truth is that the number of Americans filing applications for new unemployment benefits actually rose last week and that’s going into the holidays when we normally see a spike in employment for seasonal help. Think about that for a second or two!
Some are spinning it and saying it’s a “tighter jobs market” but I think it’s “word-smithing”. Of course, it’s a tight job market – a lot of places are closing their doors! Of course, if that’s true, then something would have to be going on with the retailers. Well, as it turns out, CNBC recently reported that mall and shopping center owners across the U.S. are preparing to be hit by even more store closures, for what they said was a year marked by department store chains like Bon-Ton and Sears going bankrupt, Toys R Us liquidating and even Walmart shutting dozens of its club stores. They also said that they are expecting even more retailers to be downsizing. Forbes backed that up recently by running a story that said that this Christmas season may be the last go-around for at least four retailing giants: Sears, Kmart, Lord & Taylor and J.C. Penney. Of course, if you’ve read my work for any period of time, you know I’ve been warning about the tsunami of retail closures along with job and income loss for a few years now. That’s what sucks about this “instant gratification” thing we have going on. By the way… it’s easy to blame Amazon for all of this, but I wouldn’t jump on that band-wagon if I were you. It’s bigger than that.
Don’t get me wrong. This is not all for a lack of dumb decisions on the public’s part. People are spending way too much on stupid things… like too much Christmas. Just, for example, NerdWallet, a group that monitors consumer spending habits, conducted a study and found that around 39.4 million Americans are still struggling to pay off their credit card debts from Christmas shopping in 2017. Happy holidays to those folks! Seriously. That’s not even the bad part. The bad part is that people are expected to spend even more this year. Why? What happened to just enjoying the company of others? Oh yeah… Bernays.
But let’s ask a serious question. Exactly how on earth are a bunch of people with no jobs, no homes and no money going pull that off? Credit cards! That’s right! They are simply going to add to their already increasing debt. Do you remember when I warned of the Coming Credit Card Crisis? Stuff like this is partially why. In that article, I warned of the economic indicators that painted a nasty picture of things to come. Have we arrived yet or is the worse still yet to come? I don’t know yet but if you think I’m exaggerating then exactly how do we explain the fact that total household debt is now $837 billion higher than its previous peak, which was in 2008 before the recession? That’s probably also why we are seeing the new car and new home sales drop as well. After all, it’s hard to buy those things with a credit card.
In fact, Binyamin Appelbaum, of the New York Times, recently wrote that “Emerging signs of weakness in major economic sectors, including auto manufacturing, agriculture and home building, are prompting some forecasters to warn that one of the longest periods of economic growth in U.S. history may be approaching the end of its run.” Binyamin quoted Ellen Hughes-Cromwick, a former chief economist at Ford Motor Co. and the Commerce Department who is now on the faculty at the University of Michigan who said that “The auto sales cycle has peaked, and the housing cycle also has peaked.” Ellen went on to say that if interest rates continue to rise, “I don’t really see how the economy can keep powering ahead.”
It can’t and it won’t because the root of the problem has not changed. Unfortunately, it doesn’t look like it’s going to change any time soon either. In fact, it looks as though things are just going to get worse because most would rather lie to themselves rather than face the truth. Perhaps that explains why we are seeing so many new people running for office with “brave new ideas” regarding social justice… who also don’t seem to have any idea about how their brave new plans will get paid for. Here’s an idea: put it on the credit card!
Speaking of which and while I’m at it, let’s go ahead and add in the idea that the federal government (AGAIN) collected record total tax revenues in October and somehow it’s STILL not enough to cover their bottom line. But don’t worry… there is a plan already in place for that. In fact, the Wall Street Journal recently published an article that spoke of how the Internal Revenue Service announced the tax code’s parameters for 2019, implementing a new method for making inflation adjustments that will result in higher tax payments—and government revenue—over time. They said that the shift will cost Americans $133.5 billion over a decade, according to Congress’s Joint Committee on Taxation. Awesome!
So, just to be clear; this ultimately equates to even less in your pocket (if you happen to have a job) and renders many of your recent tax cuts pretty much worthless. It’s unfortunate because I don’t think many saw that one coming. Factor in wages, inflation and dollar devaluation – and you can start to see what I mean when I say What goes up, must come down – and it will!
Anyway… back to the distractions.