Will the World Economy Continue to “Roll Along” in 2018?

Once upon a time, we worried about oil and other energy. Now, a song from 1930 seems to be appropriate:

Today, we have a surplus of oil, which we are trying to use up. That never happened before, or did it? Well, actually, it did, back around 1930. As most of us remember, that was not a pleasant time. It was during the Great Depression.

Figure 1. US ending stocks of crude oil, excluding the Strategic Petroleum Reserve. Amounts will include crude oil in pipelines and in “tank farms,” awaiting processing. Businesses normally do not hold more crude oil than they need in the immediate future, because holding this excess inventory has a cost involved. Figure produced by EIA. Amounts through early 2016.

A surplus of a major energy commodity is a sign of economic illness; the economy is not balancing itself correctly. Energy supplies are available for use, but the economy is not adequately utilizing them. It is a sign that something is seriously wrong in the economy–perhaps too much wage disparity.

Figure 3. U. S. Income Shares of Top 10% and Top 1%, Wikipedia exhibit by Piketty and Saez.

If wages are relatively equal, it is possible for even the poorest citizens of the economy to be able to buy necessary goods and services. Things like food, homes, and transportation become affordable by all. It is easy for “Demand” and “Supply” to balance out, because a very large share of the population has wages that are adequate to buy the goods and services created by the economy.

It is when we have too much wage disparity that we have gluts of oil and food supplies. Food gluts happened in the 1930s and are happening again now. We lose sight of the extent to which the economy can actually absorb rising quantities of commodities of many types, if they are inexpensive, compared to wages. The word “Demand” might better be replaced by the term “Quantity Affordable.” Top wage earners can always afford goods and services for their families; the question is whether earners lower in the wage hierarchy can. In today’s world, some of these low-wage earners are in India and Africa, or have no employment at all.

What is Going Right, As We Enter 2018?

[1] The stock market keeps rising.

 

The stock market keeps rising, month after month. Volatility is very low. In fact, the growth in the stock market looks rigged. A recent Seeking Alpha article notes that in 2017, the S&P 500 showed positive returns for all 12 months of the year, something that has never happened before in the last 90 years.

Very long runs of rising stock prices are not necessarily a good sign. According to the same article, the S&P 500 rose in 22 of 23 months between April 1935 and February 1937, in response to government spending aimed at jumpstarting the economy. By late 1937, the economy was again back in recession. The market experienced a severe correction that it would not fully recover from until after World War II.

The year 2006 was another notable year for stock market rise, with increases in 11 out of 12 months. According to the article,

Equity markets rallied amidst a volatility void in the lead-up to the Great Recession. Markets would make new all-time highs in late 2007 before collapsing in 2008, marking the worst annual returns (-37%) since the aforementioned infamous 1937 correction.

So while the stock market consistently rising looks like a good sign, it is not necessarily a good sign for market performance 6 to 24 months later. It could simply represent a bubble forming, which will later pop.

[2] Oil and other commodity prices are recently somewhat higher.

Recently, oil prices have been too low for most producers. Now, things are looking up. While prices still aren’t at an adequate level, they are somewhat higher. This gives producers (and lenders) hope that prices will eventually rise sufficiently that oil companies can make an adequate profit, and governments of oil exporters can collect adequate taxes to keep their economies operating.

Figure 4. Monthly average spot Brent oil prices, through December 2017, based on EIA data.

A major reason for the recent upward trend in commodity prices seems to be a shift in currency relativities for Emerging Markets.

Figure 6. Figure from Financial Times showing currency relativities based on the MSCI Emerging Market currency index.

While the currency relativities for emerging markets had fallen quite low when commodity prices first dropped, they have now made up most of their lost ground. This makes commodities more affordable in Emerging Market countries, and allows them to do more manufacturing, thus stimulating the world economy.

Of course, if China runs into debt problems, or if India runs into problems of some sort, or if oil prices rise further than they have to date, the run-up in currency relativities might run right back down again.

[3] US tax cuts create a bubble of wealth for corporations and the 1%.

With low commodity prices, returns have been far too low for many corporations involved with commodity production. “Fixing” the tax law will help these corporations continue to operate, even if commodity prices remain low, because taxes will be lower. These lower tax rates are important in helping commodity producers to avoid collapsing as a result of low commodity prices.

The problem that occurs is that the change in tax law opens up all kinds of opportunities for companies to improve their tax situation, either by changing the form of the corporation, or by merging with another company with a suitable tax situation, allowing the combined taxes to be minimized. See this recent Michael Hudson video for a discussion of some of the issues involved. This link is to a related Hudson video.

Groups evaluating the expected impact of the proposed tax law did their evaluations as if corporate structure would remain unchanged. We know that tax accountants will help companies quickly make changes to maximize the benefit of the new tax law. This is likely to mean that US governmental debt will need to rise much more than most forecasts have predicted.

In a way, this is a “good” impact, because more debt helps keep commodity prices and production to rise, and thus helps keep the economy from collapsing. But it does raise the question of how long, and by how much, governmental debt can rise. Will the addition of all of this new debt raise interest rates even above other planned interest rate increases?

[4] We have been experiencing artificially low oil prices since 2013. This helps the economic growth to be higher than it otherwise would be. 

In February 2014, I published an article documenting that back in 2013, oil prices were too low for oil producers. If a person looks at Figure 4, oil prices were over $ 100 per barrel that year. Clearly, oil prices have been much too low for producers since that time.

Unfortunately, it looks like these artificially low oil prices may be coming to an end, simply because the “glut” of oil that developed is gradually being reduced. Figure 7 shows the timing of the recent glut of oil. It seems to have started early in 2014.

Figure 7. US Stocks of crude oil and petroleum products (including Strategic Petroleum Reserve), based on EIA data.

If we look at the combination of oil prices and amount of oil in storage, a person can make a rough estimate of how this glut of oil might disappear. Quite a bit of it may be gone by the end of 2018 (Figure 8).

Figure 8. Figure showing US oil stocks (crude plus oil products) together with the corresponding oil prices. Rough guess of how balance might disappear and future prices by author.

Of course, one of the big issues is that consumers cannot really afford high-priced oil products. If consumers could not afford $ 100+ prices back in 2013, how would it be possible for oil prices to rise to something like $ 97 per barrel by the end of 2018?

I am not certain that oil prices can really rise this high, or that they can stay at this level very long. Certainly, we cannot expect oil prices to rise to the level they did in July 2008, without recession causing oil prices to crash back down.

What the Economy Needs Is Rising Energy Per Capita

I have published energy per capita graphs in the past. Flat spots tend to represent problem periods.

Figure 9. World per Capita Energy Consumption with two circles relating to flat consumption. World Energy Consumption by Source, based on Vaclav Smil estimates from Energy Transitions: History, Requirements and Prospects (Appendix) together with BP Statistical Data for 1965 and subsequent, divided by population estimates by Angus Maddison.

The 1920-1940 flat period came shortly after the United Kingdom reached Peak Coal in 1913.

Figure 10. United Kingdom coal production since 1855, in figure by David Strahan. First published in New Scientist, 17 January 2008.

In fact, the UK invaded Mesopotamia (Iraq) in 1914, to protect its oil interests. The UK wasn’t stupid; it knew that if it didn’t have sufficient coal, it would need oil, instead.

There were many other disturbing events during this period, including World War I, the 1918 flu pandemic, the Great Depression, and World War II. If there are not enough energy resources to go around, many things tend to go wrong: countries tend to fight for available resources; jobs that pay well become less available; deflation becomes more likely; population becomes weakened, and epidemics become more likely. I wrote about the 1920 to 1940 period in a recent post, The Depression of the 1930s Was an Energy Crisis.

The 1980-2000 flat period included the collapse of the Soviet Union, in 1991. The Soviet Union was an oil producer. The Soviet Union collapsed after prices had been low for a long time.

Figure 11. Former Soviet Union oil consumption, production, and inflation-adjusted price, all from BP Statistical Review of World Energy, 2015.

Even many years after the collapse of the Soviet Union, population growth in former Soviet Union countries and its affiliates was much lower than in the rest of the world.

Figure 12. World population growth rates between 2005 and 2010. Source: https://en.wikipedia.org/wiki/List_of_countries_by_population_growth_rate

Lower population (through falling birth rates, rising death rates, or rising emigration) are a major way that economies self-adjust because of falling energy per capita. Economies tend to fix the low-energy per capita problem by adjusting the population downward.

Recently, we have again been hitting flat periods in energy consumption per capita.

Figure 13. World per capita consumption of oil and of total energy, based on BP Statistical Review of World Energy data and UN 2017 population data.

The slowdown in world energy consumption per capita in 2008-2009 was clearly a major problem. Oil, coal and natural gas consumption fell simultaneously. Oil consumption per capita fell more than the overall mix, especially affecting countries heavily dependent on oil (Greece with its tourism, but also the US, Japan, and Europe).

The recent shift in political strategy to more isolationist stances also seems to be the result of flat energy consumption per capita. It is doubtful that Donald Trump would have been elected in the US, if world energy consumption per capita had been growing robustly, and if wage disparity had been less of a problem.

The primary cause of the 2013 to 2016 flat trend in world energy consumption per capita is (Figure 13) is falling coal consumption (Figure 14). Many people think coal is unimportant, but it is the world’s second largest source of energy, after oil. We don’t have a good way of getting natural gas production to rise enough, to make up for loss of coal production.

Figure 14

Wind and solar simply do not work for solving our problem of flat or shrinking energy consumption per capita. After spending trillions of dollars on them, they make up only a tiny (1%) share of world energy supply, according to the International Energy Agency. They are part of the little gray “Other” sliver on Figure 15.

Figure 15. Figure prepared by IEA showing Total Primary Energy Supply by type from this IEA document.

Something Has to “Give,” When There Is Not Enough Energy Consumption per Capita

The predicament we are facing is that energy consumption per capita seems to be reaching a maximum. This happens because of affordability issues. Over time, the price of energy products needs to rise to keep up with the rising cost of creating these energy products. But if energy prices do rise, workers earning low wages cannot to afford to buy goods and services made with high-priced energy products, plus honor all of their other commitments (such as mortgages, auto loans, and student loans). This leads to debt defaults, as it did in the 2008-2009 recession.

At some point, the affordability problem can be expected to hold down energy consumption. This could happen in many ways. Spiking prices and affordability issues could lead to a worse rerun of the 2008-2009 recession. Or if oil prices stay fairly low, oil-exporting countries (such as Venezuela) may collapse because of low prices. Even if oil prices do rise, we may find that higher prices do not lead to sufficient additional supply because investment in new oil fields has been low for many years, because of past low prices.

As long as the world economy is expanding (Figure 16), individual citizens can expect to benefit. Jobs that pay well are likely to be available, and citizens can afford to buy goods with their growing wages. People who sell shares of stock and people who get pension benefits can all receive part of this growing economic output.

Figure 16. Author’s image of an expanding economy.

Once the economy starts to shrink (Figure 17), we start having problems with dividing up the goods and services that are available. How much should retirees get? Governments? Today’s workers? Holders of shares of stocks and bonds? Not all commitments can be honored, simultaneously.

Figure 17. Author’s image of declining economy.If world population is rising at the same time, the per capita “shrinkage” problem gets to be worse.

One obvious problem in a shrinking economy is that loans become harder to repay. The problem is that there is less left over for other goods and services, after debt plus interest is subtracted, in a shrinking economy.

Figure 18. Figure by author.

Changing interest rates can to some extent help offset problems related to higher energy prices and shrinking supply. The danger is that interest rates can move in the wrong direction and make our problems worse. In the lead-up to the Great Recession of 2008-2009, the US raised short-term interest rates, helping to puncture the sub-prime mortgage debt bubble.

Figure 19. Figure comparing Case-Shiller Seasonally Adjusted Home Price Index and Federal Reserve End of Quarter Target Interest Rates. See Oil Supply Limits and the Continuing Financial Crisis for details.

We now hear a lot of talk about raising interest rates and selling QE securities (which would also tend to raise interest rates). If growth in energy consumption per capita is already flat, these changes could make the problems that the economy is facing even worse.

Our Economy Works Like a Bicycle

Have you ever wondered why a two-wheeled bicycle is able to stay upright? Research shows that a bicycle will stay upright, as long as its speed is greater than 2.3 meters (7.5 feet) per second. This is the result of the physics of the situation. A related academic article states, “This stability typically can occur at forward speeds v near to the square root of (gL), where g is gravity and L is a characteristic length (about 1 m for a modern bicycle).”

Thus, a bicycle will be able to continue in an upright manner, as long as it goes fast enough. If it slows down too much, it will fall down. Our economy is similar.

Gravity plays an important role in determining the speed of a bicycle. If the bicycle is going downhill, gravity gives an important boost to the speed of the bicycle. If the bicycle is going uphill, gravity very much pulls back on the bicycle.

I think of the situation of an economy having rising energy consumption per capita as being very much like riding on a bicycle, speeding down a hill. The person operating the bicycle would not need to provide much extra energy to keep the bicycle going.

If energy consumption per capita is flat, the person riding the bicycle must provide the energy to make it go fast enough, so it doesn’t fall over. This is somewhat of a problem. If energy consumption per capita actually falls, it is a true disaster. The bicyclist himself must provide the energy necessary to push the bicycle and rider uphill.

In fact, there are other ways that a speeding bicycle is analogous to the world economy.

Figure 20. Author’s view of analogies of speeding upright bicycle to speeding economy.

The economy needs a constant flow of outside energy. In the case of the bicycle, the human rider can provide the energy flow. In the case of the economy, the energy flow comes from a mixture of various fuel types, typically dominated by fossil fuels.

Growing debt (front wheel) is important as well. It tends to pull the economy along, because this debt can be used to pay wages and to buy materials to make create additional goods and services.

In fact, the financial system as a whole is important for the “steering” of the economy. It tells investors which investments are likely to be profitable.

The gearing system of the bicycle plays a modest role in the system. Changing gears allows greater efficiency in the use of the energy that is available, under certain circumstances. But energy efficiency, by itself, cannot operate the system.

If the human rider does not provide sufficient energy for the bicycle to go rapidly enough, the bicycle glides for a while, and then falls over. The world economy seems to be similar. If the world economy does not obtain enough energy per capita, economic growth tends to slow and eventually collapses. The collapse can relate to the whole world economy, or to parts of the economy.

The Problem of Parts of the Economy Not Getting Enough Energy

We can think of the economy as being made up of many bicycles, operated by bicycle riders. At the beginning of the post, I talked about the problem of wage disparity. This issue occurred at the time of the 1930’s Great Depression and is occurring again now.

We might call wage disparity “too low a return on the labor of some workers.” In groups of animals in ecosystems, too low a return on the effort of these animals is what causes ecosystems to collapse. For example, if fish have to swim too far to obtain additional food, their population will collapse. It should not be surprising that economies tend to collapse, when the return on the efforts of part of their workers falls too low.

Wage disparity has to do with how well the operators of bicycles are doing. Are the operators of these bicycles receiving enough calories, so that they can keep pumping their bicycles fast enough so that the speed is high enough to remain upright?

If energy consumption per capita is growing, this greatly helps the operation of the economic system. If there is growing availability of inexpensive energy, machines of various types, including trucks, can be used to increasingly leverage the labor of workers. This increased leveraging helps each worker to become more “productive.” This growing productivity, thanks to growing energy consumption, allows more goods and services to be produced in total. It also allows the wages of the workers to stay high enough that they can afford to buy a reasonable share of the output of the economy. When this happens, “gluts” of unaffordable goods are less of a problem.

If energy consumption per capita is flat (or worse yet, falling), greater “complexity” is needed, to keep output of goods and services rising. Greater complexity involves more specialization and more training of individual members of the economy. Greater complexity leads to larger companies, more government services, and more wage disparity. Unfortunately, there are diminishing returns to complexity, according to Joseph Tainter in “The Collapse of Complex Societies.” Ultimately, increased complexity fails to provide an adequate number of high-paying jobs. Wage disparity becomes a problem that can cause an economy to collapse.

If there is not enough economic output, the physics of the economy tries to “freeze out” workers at the bottom of the hierarchy. Workers with low wages cannot afford homes and families. The incidence of depression rises. Debt levels of disadvantaged groups (such as young people in the US) may rise.

So the situation may not be that the whole world economy fails; it may be that parts of the economy collapse. In fact, we are already seeing evidence that this is taking place. For example, life expectancies for US men have been falling for two years, because of growing problems with drug overdoses.

Conclusions

In 2017, the world economy seemed to be gliding smoothly along because the economy has been able to get the benefit of artificially low energy prices and artificially low interest rates. These artificially low prices and interest rates have given a temporary boost to the world economy. Countries using large amounts of energy products, including the US, especially benefitted.

We cannot expect this temporary condition to continue, however. Low oil prices have already started to disappear, with Brent oil prices at nearly $ 69 per barrel at this writing. The trends in oil prices and oil stocks in Figure 8 are disturbing. If oil prices begin to rise toward the price needed by oil producers, they are likely to trigger a recession and a drop in world energy consumption, just as spiking prices did in 2008-2009. There is a significant chance of collapse in the next 12 to 24 months. It is hard to know how widespread such a collapse may be; it may primarily affect particular countries and population groups.

To make matters worse, our leaders do not seem to understand the situation. The world economy badly needs rising energy consumption per capita. Plans to raise interest rates and sell QE securities, when the economy is already “at the edge,” are playing with fire. If we are to keep the world economy operating, large quantities of additional energy supplies need to be found at very low cost. It is hard to be optimistic about this happening. High-cost energy supplies are worthless when it comes to operating the economy because they are unaffordable.

Many followers of the oil situation have had great faith in Energy Returned on Energy Invested (EROI) analysis telling us which kinds of energy supplies we should increase. Unfortunately, EROI doesn’t tell us enough. It doesn’t tell us if a particular product is scalable at reasonable cost. Wind and solar are great disappointments, when total costs, including the cost of mitigating intermittency on the grid, are considered. They do not appear to be solutions on any major scale.

Other researchers looking at the energy situation have not understood how “baked into the cake” the need for economic growth, rising per capita energy consumption, and rising debt levels really are. Rising debt is not an error in how the financial system is put together; a bicycle needs a front wheel, or it cannot operate at all (Figure 20). I have written other articles regarding why debt is needed to pull the economic system forward.

This economic growth cannot be “fake growth” either, where a debt Ponzi Scheme seems to allow purchases that real-life consumers cannot afford. Quite a bit of what is reported as world GDP today is of a very “iffy” nature. If China builds a huge number of apartments that citizens cannot afford without subsidies, should these be counted as true GDP growth? How about unneeded roads, built using the rising debt of the Japanese government? Or recycling performed around the world, because it makes people “feel good,” but really requires substantial subsidies?

At this point, it is hard for us to know where we really are, because every government wants to make GDP results look as favorable as possible. It is clear, however, that 2018 and 2019 can be expected to have more challenges than 2017. We have interesting times ahead!

Republished with permission by Our Finite World.




Gold, The Economy, Cryptocurrencies And Irrational Exuberance

The current tax legislation isn’t some thoughtful reform to benefit Americans. It’s a quickly planned looting through a broken window in our nation’s character. – John Hussman

John Hussman wrote a must-read essay titled:  “Three Delusions:  Paper Wealth, A Booming Economy and Bitcoin (link).”   The crypto/blockchain delusion has exceeded the absurdity of the dot.com and housing bubble eras.   I was shorting fraud stocks happily in both eras.  I’m short a company  now called Riot Blockchain.  If you look at its description in Yahoo Finance, it bills itself as a developer of technologies applied to animal (“non-human”) medicine.  It recently changed its name to Riot Blockchain from Bioptix Inc.  Prior to calling itself Bioptic Inc, it called itself Venaxis.  Just the name change to Riot “Blockchain” moved the stock from $ 4 to $ 40…insanity.

The Company changed its name in early October to Riot Blockchain.  Based on this, Canaccord was more than happy to fleece investors by raising $ 37 million for Riot in a private placement.  But that’s okay I guess because one has to be a “sophisticated” investor with the financial qualifications to have your money taken from you by Wall Street and Bay Street in order to invest in private placements.

Fundamentally this system is dissolving. The Government economic data, like GDP, CPI and employment  is worthless. The numbers produced by the Government are rigged to support political propaganda about the economy and the financial system. Economic reports released by the private sector generally contradict the Government’s reports.

Silver Doctors invited me to participate in their weekly Metals & Markets podcast. We chatted about gold, cryptocurrencies and the economy. Gold is currently the only asset that has not participated in this “Irrational Exuberance 2.0.” Of course, gold ran from $ 250 to $ 1900 from 2001 to 2011. We discuss why now is time to move investment funds back into gold for its next cyclical bull move in the context of a much bigger secular bull market in real money:

If you are interested in finding junior mining stock ideas, as well as relative value trade ideas in larger cap mining stocks, click here to learn more about the Mining Stock Journal. New subscribers get a copy of all of the back-issues with their subscription.

Investment Research Dynamics




For Clues On The Economy, Follow The Money

“There is nothing new on Wall Street or in stock speculation. What has happened in
the past will happen again, and again, and again. This is because human nature does
not change, and it is human emotion, solidly built into human nature, that always
gets in the way of human intelligence. Of this I am sure.” –Jesse Livermore

The profitability of lending/investing money is a function of both the rate of return on the money loaned/invested and the return (payback) of the money. The historically low interest rates are squeezing lenders by driving the rate of return on the loan toward zero (note: “lenders” can be banks or non-bank lenders, like pension funds investing in bonds).

As the margin on lending declines, lenders, begin to take higher risks. Eventually, the degree of risk accepted by lenders is not offset by the expected return on the loan – i.e. the probability of partial to total loss of capital is not offset by a corresponding rate of interest that compensates for the risk of loss. As default rates increase, the loss of capital causes the rate of return from lending to go negative. Lenders then stop lending and the system seizes up. This is what occurred, basically, in 2008.

This graphic shows illustrates this idea of lenders pulling away from lending:

The graph above from the St Louis Fed shows the year over year percentage change in commercial/industrial loans on a monthly basis from commercial banks from 1998 to present. I have maintained that real economic growth since the initial boost provided by QE has been contracting for several years. As you can see, the rate of growth in lending to businesses has been declining since 2012. The data in the chart above is through October and it appears like it might go negative, which would mean that commercial lending is contracting. This is despite all of the blaring media propaganda about how great the economy is performing.

The decline in lending is a function of both lenders pulling back from the market, per reports about credit conditions in the bank loan market tightening, and a decline in the demand for loans from the private sector. Both are indicative of declining economic activity.

This thesis is reinforced with this graphic:

The chart above shows the year over year percentage change in residential construction spending (red line) and total construction (blue line). As you can see, the growth in construction spending has been decelerating since January 2014. Again, with all of the media hype about the housing market, the declining rate of residential construction suggests that the the demand side of the equation is fading.

The promoters of economic propaganda have become sloppy. It’s become quite easy to invalidate Government economic reports using real world data. Using the Government-calculated unemployment rate, the economic shills constantly express concern about a “tight labor market.” Earlier this week, Moody’s chief economist Mark Zandi asserted that (after the release of the phony ADP employment data) the “job market feels like it might overheat.” The problem with this storyline is that it is easy to refute:

The graph above is from the Bureau of Labor Statistics productivity and costs report. The blue line shows unit labor costs. As you can see, unit labor costs have been decelerating rapidly since 2012. In fact, labor costs declined the last two months. The last time labor costs declined two months in a row was November 2013.

See the problem? If labor markets were “tight” or in danger of “overheating,” labor costs would be soaring, not falling. This is why I say the shills are getting sloppy with their use of manipulated Government economic reports. It’s too easy to find data that refutes the propaganda. I remember Mark Zandi from my junk bond trading days in New York. He was an “economist” for a fixed income credit analysis service (I can’t remember the name). I thought his analytic work was questionable at best back then. I continue to believe his analysis is highly flawed now. Recall, Moody’s is the rating agency that had Enron rated triple-A until shortly before it collapsed. That says it all…

Speaking of the labor market, I wanted to toss in a few comments about November’s employment report. The BLS headline report on Friday claims that 255k jobs were created in November. However, not reported in any part of the financial media coverage, “seasonal-adjustment gimmicks bloated headline payroll gains, where unadjusted payrolls were revised lower but adjusted levels revised higher” (John Williams’ Shadowstats.com).

The point here is that, in all likelihood, most of the payroll gains in the BLS report were a product of the mysterious “seasonal adjustment” model used. Per the BLS report, another 35k were removed from the labor force as defined. Recall that anyone who has not been looking for a job in the previous four weeks is removed from the labor force statistic. Furthermore, and never mentioned by the media/Wall St., the BLS report shows the number unemployed increased by 90k in November.

I don’t know when the stock market bubble will lose energy and collapse.  What I do know is that each time the U.S. stock market disconnects from reality, there’s a period of “it’s different this time,” followed by the crash that blind-sides all of the so-called “experts” – most of whom like Dennis Gartman do not have their own money in the stock market (it’s well-known that Jeremy Siegel invests only in Treasuries).  The retail lemmings who think they’ll be able to get out before the crash will see their accounts flattened like a Japanese nuclear power plant.

Most of the commentary above is from my Short Seller’s Journal, in which I present stocks  to short every week (along with options suggestions).  You can learn more about this newsletter here:   Short Seller’s Journal subscription info.

I’ve been a subscriber for a good part of the year and really enjoy my Sunday evening read. Thank you – received sent this morning from “William”

Investment Research Dynamics




The Economy Is Okay? U.S. Retail Store Closings Hit A New Record High As West Coast Homelessness Soars

If the U.S. economy is doing just fine, why have we already shattered the all-time record for retail store closings in a single year?  Whenever I write about our “retail apocalypse”, many try to counter my arguments by pointing out the growing dominance of Amazon.  And I certainly can’t deny that online shopping is on the rise, but it still accounts for less than 10 percent of total U.S. retail sales.  No, something bigger is happening in our economy, and it isn’t receiving nearly enough attention from the mainstream media.

Back in 2008, a plummeting economy absolutely devastated retailers and it resulted in an all-time record of 6,163 retail stores being closed that year.

So far in 2017, over 6,700 stores have been shut down and we still have nearly two months to go!  The following comes from CNN

More store closings have been announced in 2017 than any other year on record.

Since January 1, retailers have announced plans to shutter more than 6,700 stores in the U.S., according to Fung Global Retail & Technology, a retail think tank.

That beats the previous all-time high of 6,163 store closings, which hit in 2008 amid the financial meltdown, according to Credit Suisse (CS).

Just within the last week, we have learned that Sears is closing down another 60 stores, and Walgreens announced that it intends to close approximately 600 locations.

Overall, about 300 retailers have declared bankruptcy so far in 2017, and we are on pace to lose over 147 million square feet of retail space by the end of the year.

Oh, but it is all Amazon’s fault, right?

Meanwhile, mainstream news outlets are reporting that homelessness is “exploding” out on the west coast.

For instance, we are being told that there are “400 unauthorized tent camps” in the city of Seattle alone

Housing prices are soaring here thanks to the tech industry, but the boom comes with a consequence: A surge in homelessness marked by 400 unauthorized tent camps in parks, under bridges, on freeway medians and along busy sidewalks. The liberal city is trying to figure out what to do.

But I thought that the Seattle economy was doing so well.

I guess not.

Down in San Diego, they are actually scrubbing the sidewalks with bleach because the growing homeless population is spreading hepatitis A everywhere…

San Diego now scrubs its sidewalks with bleach to counter a deadly hepatitis A outbreak. In Anaheim, 400 people sleep along a bike path in the shadow of Angel Stadium. Organizers in Portland lit incense at an outdoor food festival to cover up the stench of urine in a parking lot where vendors set up shop.

Over the past two years, “at least 10 cities or municipal regions in California, Oregon and Washington” have declared a state of emergency because homelessness has gotten so far out of control.

Does that sound like a healthy economy to you?

The truth is that the financial markets have been doing great since the last financial crisis, but the real economy has never really recovered in any sort of meaningful way.

With each passing day, more Americans fall out of the middle class, and the homeless populations in major cities all over the nation continue to grow.

We truly are in the midst of a long-term economic collapse, and if we don’t find a way to fix things our problems will just continue to accelerate.

So don’t be fooled by the mainstream media.  They may be trying to convince you that everything is just wonderful, but that is not the reality that most people are facing at all.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

The Economic Collapse




China’s Gold/Oil Play; Greg Weldon: Debt-Driven Consumer Economy Breaking Down

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Coming up we’ll hear from Greg Weldon of Weldon Financial and WeldonLive. Greg’s research calls for the markets to roll over, and he’s expecting some very rough waters ahead based on key metrics he’s focused on – consumer spending and debt. He also weighs in on the tricky spot the Fed is in and where this is all pointing for both stocks and for gold. Don’t miss a wonderful interview with Greg Weldon, coming up after this week’s market update.

Precious metals markets pulled back earlier this week before regaining some footing on Thursday. As of this Friday recording, gold comes in at $ 1,283 an ounce and is posting a loss for the week of 1.7%. The silver market ticker shows a weekly decline of 1.9% to bring spot prices to $ 17.14 per ounce.

The red metal copper hit a three-year high this week. Not much price action of significance in oil and other commodities. However, there have been some interesting developments of late in the way crude oil futures get traded internationally.

China recently took aim at the U.S. petrodollar by announcing a system for buying imported Arab oil using Chinese yuan which are also now convertible into gold. This enables China and its trading partners to bypass the dollar using a common monetary standard.

The rise of a “petroyuan” could become the biggest threat to the U.S. dollar’s status as world reserve currency. China’s appetite for imported oil is enormous and growing. So it makes sense for the country to seek direct trade deals with Saudi Arabia, Russia, and other suppliers.

For its part, Russia is all too willing to deal in gold. Russian officials view the monetary metal as integral in combating international economic sanctions and supporting the ruble.

Even though the United States is no longer on a gold standard, it still holds one of the world’s largest gold stockpiles. Treasury Secretary Steven Mnuchin did a spot-check on Fort Knox for PR purposes and claims that America’s gold is safe. With no true audit of Fort Knox in more than 60 years, many doubts remain about who actually holds title to all the gold bars and whether some may be counterfeit, leased out, or just plain missing.

If citizens were allowed to redeem their dollars for gold or silver coins on demand, then nobody would have to take the government’s promises on faith. Of course, there was a time when U.S. currency explicitly stated it was redeemable in precious metal.

It’s a history most people today know little about. Those who were around as recently as 1963 may remember when paper dollars were also silver certificates – redeeemable in silver coins.

Most politicians, bankers, and business titans today quite prefer digital dollars redeemable in nothing. They would prefer the public to not be tangibly connected to its history. There is a war on cash, a war on gold, and a war on history being waged in this country. They all go hand in hand.

This month saw a war on Columbus Day waged. Historical statues and monuments were vandalized, and New York City mayor Bill DeBlasio threatened to tear down the city’s Columbus statue. Other cities moved to abolish Columbus Day and replace it with the newly made up “Indigenous People’s Day.”

Another major battle in the war on history will be decided next month in Virginia. The Democrat candidate in the upcoming gubernatorial election vows to tear down all Confederate statues in the state. His Republican opponent is making the election a referendum on keeping history up. He recently released this 30 second TV commercial:

Announcer: Ralph Northam wants to take down Virginia’s Civil War statues.

Ralph Northam: I would do everything that I can to remove the statues at the state level. Remove the statues at the state level.

Announcer: Ralph Northam would take our statues down. Ed Gillespie will keep them up.

Ed Gillespie: I want to keep our statues up. Our history is our history, and we need to teach it, not erase it. They should stay up. I’m Ed Gillespie, candidate for governor, and I sponsored this ad.

If historical landmarks that reflect values different from the ones prevailing today aren’t allowed to exist, the past can’t speak to us directly anymore. Every generation will want to apply some new politically correct filter for determining whose history can stand. Some historical figures will be demonized for their words and actions. Others will be dismissed as no longer relevant, their ideas obsolete for modern times.

Similar attacks were launched on gold and silver to shift America’s monetary system from sound to fiat. Gold is outmoded. It’s been rendered useless in the modern economy. It’s just a “barbarous relic” and so on.

This is what central bankers and their ideological allies want us to believe. But if gold were truly obsolete as a monetary asset, then central banks would sell all their gold reserves. They certainly wouldn’t be buying it. Not in 2017 when the global economy can run on digital currencies and crypto-currencies.

But central banks are still holding and accumulating gold. And for good reason. Gold’s history as money spans far longer than the timeline of any fiat currency. Gold’s history gives people confidence in its future as a store of value.

Yes, history still matters, even in the current year.

Well now, without further delay, let’s get right to this week’s exclusive interview.

Greg Weldon

Mike Gleason: It is my privilege now to welcome in Greg Weldon, CEO and President of Weldon Financial. Greg has over three decades of market research and trading experience, specializing in metals and commodity markets and even authored a book in 2006 titled Gold Trading Bootcamp, where he accurately predicted the implosion of the U.S. credit market and urged people to buy gold when it was only $ 550 an ounce.

He is a highly sought-after presenter at financial conferences throughout the country, and is a regular guest on financial shows throughout the world, and it’s good to have him back here on the Money Metals Podcast.

Greg, thanks for joining us today. And it’s nice to talk to you again. How are you?

Greg Weldon: I’m great, thanks. My pleasure, Micheal.

Mike Gleason: Well, when we had you on back in mid-August you were optimistic about gold at the time. We had a pretty good move higher, shortly thereafter that ended up with gold hitting a one year high. But it stalled out around $ 1,350 in early September and we’re currently back below $ 1,300 as we’re talking here on Wednesday afternoon. Gold hit resistance at about the same level in the summer of last year, so give us your update as to your current outlook. What drivers, if any, do you see that can push gold through that $ 1,350 resistance level in the months ahead, Greg?

Greg Weldon: Yeah, well, exactly as you said. You had the move that we were anticipating when we last spoke and it kind of had already started from the 1205-ish level. All of this fitting into the kind of bigger picture, technical structure that still leads to a bullish resolution. But as you accurately mentioned, you got up to what have been close to, not quite even towards last summer’s highs around $ 1,375, $ 1,377. In this case, around $ 1,360 and ran out of steam.

The dollar kind of changed some of the picture and the thought process linked to the Fed changed some of the picture. So, you embarked on a downside correction. $ 1,260 was the low, you have a nice little correction from that level. That was the level that equated to 200-day exponential moving average. It’s a level that was just below the 38% Fibonnaci retracement of the move up from $ 1,205. Actually, the move up from $ 1,123 back at the end of 2016. So you had real, critical support there. So, to me, everything’s kind of mapped out the way you might expect it to, structurally, in this market.

From here, one of two things happens, I think. Well, one of three things, anyway. You could be cut if you have a bit of low rally backed up to $ 1,300. You back below it a little bit to dollars; still looks kind of strong. It’s an interest rate differential dynamic as a more hawkish view for the Fed is priced into the Fed funds; that gets transferred into the two-year and five-year treasury notes. The two-year treasury notes at a record high-yield relative to the German two-year schatzi. So, that lifting the dollar … it’s kind of gravitational pull to the upside. And that is some of the downside risk here; that the rally we just saw is kind of you b-wave and maybe you have a c-wave down towards $ 1,240. That’s kind of an ultimate low. Whether or not it plays out that way, longer term we still like it.

Mike Gleason: Precious metals have had a pretty respectable year all in all. Gold is up about 11% year to date. Silver is up about half as much. There isn’t exactly a lot of excitement. It seems like it’s always two steps forward, one step back. Sentiment in the physical bullion markets, where we operate, is muted. There are multiple factors to consider as to why metals markets are stuck in a bit of a rut. It seems to us that one of the big ones is the equities market stock prices just keep marching relentlessly higher. Either investors have become totally desensitized to risk or maybe there just isn’t as much risk as well think there is. In any event, barring some sort of spike in inflation expectations, which pushes metals and stocks both higher, we don’t see gold and silver breaking out unless investors start getting nervous about stock market valuations and thinking about safe havens. So what are your thoughts about equity markets and how they relate to precious metals, Greg? And where do you see stock prices headed in the near term?

Greg Weldon: Yeah, I mean it’s a perfect question because the reality is, and we in our daily research we focused on this, in fact yesterday. We haven’t spoken … It sounds like we arranged this question. Focusing on the fact that gold, relative to S&P, is at a low. You really are kind of lows that we’ve seen before, but at a level where if you get much lower, you’re breaking down to multi-year lows and this whole thing gets called into question from a technical perspective. But my problem with looking at it from a technical perspective, is that I think the stock market is living in borrowed times. Basically, the Fed has done exactly what they wanted to do. They have flushed people out of safe havens and into risk assets. That’s the whole idea of QE. It worked. You reflated the stock market. That has facilitated a huge, unprecedented rise in consumer credit.

Instead of the housing market being the collateral like it was in 2006 and 2007, now it’s the stock market that’s the collateral, the Googles and Amazons of the world and the Facebooks of the world. And you have this demand that is being driven or really being fed by credit. Now you see the credit numbers start to slow. They’re unsustainable. You start to see the consumer roll over a little bit. So that’s the number one risk to the stock market; it’s actually the consumer.

If you look at the retail sales numbers, outside of automobiles and gasoline, which is price-based, you don’t have much of anything. And you have eating and drinking growth slowing. That’s a key component, a key layer to the discretionary spending that’s an important tell to the bigger picture. The consumer discretionary sector is breaking down against the S&P. So that’s a warning sign to me.

You have, in terms of the dynamics around what the expectation is for GDP growth, predicated upon policies that have not yet been even agreed upon, let alone voted upon, let alone implemented, let alone starting to work. So, I worry about that kind of fracture between the expectations, the patience level of stock investors, diminished returns, diminished volumes. I think there’s a stock market risk. That’s one of the reasons we like gold, because what would go hand in hand with that, was some kind of maybe statement or a pull back on the dot plot from the Fed that would then cause the dollar to come off its little rally here.

Mike Gleason: Let’s play the devil’s advocate maybe a little here. We look at these record stock prices and wonder about what is beyond this extraordinarily high valuations in the past when PE ratios hit these levels, it was a signal that markets were nearing a top. But there’s one big difference between the past and today: the advent of high frequency and machine-driven trading. Huge amounts of daily volume is generated by trading algorithms. That is a game changer. These programs don’t sense risk on an emotional level like human traders do. They respond very differently to geopolitical events. So, if today’s markets seem disconnected from reality, perhaps because it’s because they are.

Now you have been on the front lines, trading in these markets for decades. You were a witness for how markets have transformed in recent years. What is your take on high frequency and algorithmic trading and what does it say about the possibility that current equity market valuations can be sustained or maybe even pushed higher? What are your thoughts there, Greg?

Greg Weldon: That’s phenomenal question and it’s very well timed given that we did a big special in September called “Shrinkage,” which is a shift in the Fed policy here. But if you take now your question, which is pertinent now, and you look at experience, in my experience over decades, it brings back 1987 right off the bat. We’re not saying the market’s going to crash. There clearly there are a lot of differences. But when you ask about high frequency trading, it sounds to me, the first thing I think of, is portfolio insurance on steroids, times a thousand, times ten thousand. So, the risk in terms of just what is the catalyst that then causes kind of that cascading downside?

One of the things we’ve been pointing out to our customers… and by the way, I’m working out a gigantic special that shows just how intriguing some of the similarities are around movements in the dollar, movements in bonds, movements in gold, and movements in stocks, and some of the ratios, and even down to crude oil, Fed policy and CPI. Now as there was basically from 1985 to ’87, once they kicked in the Plaza Accord, which depreciated the dollar. A lot of intriguing connections there and the special report that I’m writing on this, it’s called “What, Me Worry?” which we’d love to make available to any of your listeners, first of all, if they want to email me.

But in terms of the catalyst, setting it up, again I think the landmines are laying in wait out there. I think if you take an example, one of the things, like I said we’ve been telling our customers, if you take Amazon or Google. Stock are trading at $ 1,000 a share. You need $ 1,000 to buy one share. So, the volume of trading has diminished dramatically over the last couple of years as the stock prices has gone up. The ownership is huge. And it’s passive, and it’s managed investments, it doesn’t matter, it doesn’t discriminate in terms of what type of investor. The people who want to own these stocks, own them. The dynamic between the price level being so high, nominally speaking, to buy up block shares, the amount of money needed, pure and simple, against the volume, to me, sets up something like you’re talking about that would be exacerbated by a flash crash. So, it becomes very scary in terms of what kind of meltdown could you see if you get the ball rolling to the downside.

I still think that this is something that will play out over some time. I think the Fed is there. I don’t think this is … There are a lot of differences. I’m not trying to make a direct ’87 comparison. But I’ll tell you what, the risk is there. No doubt about it. The risk is rising.

Mike Gleason: In terms of the Fed here, Greg, what is your thinking on who it might be that talks over for Janet Yellen as the next Fed chair and then also, tell us what you think they’re going to do here in terms of getting inflation to where they want? Basically, what are your general thoughts on the Fed and Fed monetary policy? Clearly everyone’s favorite subject.

Greg Weldon: Really, it’s two totally separate questions right now because who is Donald Trump going to pick versus how inflation going to play out. I think if you look at what the Fed is saying, the Fed has been very clear. This is where (Jerome) Powell becomes, what seems to be, and I’m not saying I believe this, I’m just saying it seems that Powell’s a logical choice if, IF, your goal is to maintain policy. Thinking about bringing in a guy like (John) Taylor, and the Taylor rule and where the natural level of Fed funds should be here, he would obviously be a much more hawkish choice. While him and Trump might have really gotten along, and maybe there’s a lot Trump can learn from him, I don’t think that’s the guy Trump wants in terms of policy for trying to get his growth agenda going.

In that context, how you maintain continuity, which really isn’t that bad. They’re certainly not tight and they’re not tightening to any nth degree. It’s almost Goldilocks material here, inflation aside. Powell is a logical choice because you make a headline splash, which of course he loves. You basically make a change, but you kind of keep the status quo.

The other one would be (Kevin) Warsh. He was more away from QE and towards just using interest rates. He’s an interesting kind of dark horse. Yellen is certainly a dark horse. What mattes really is how does the Fed decide they’re going to deal with this inflation issue when they can’t even decide what’s causing it? Because you keep hearing transitory, idiosyncratic. These are the words that being used repeatedly, over and over and over again to describe, and you’ve had one Fed official go so far as, and even Yellen herself has made comments to the effect of, “We don’t understand why it’s not materializing.”

Again, kind of back to the Taylor model, the basic rule of thumb that the Fed is counting on, i.e. hoping for, is that as the labor market continues to tighten wages, inflation will go up and that will support of a general rise in prices. The question now becomes is the natural rate of unemployment lower than we thought it was. Or, are there structural differences now, technologically based dynamics in the labor market that has hollowed out the labor market, the reason you still have participation rate while finally up a little, is still so low historically, therein lies the question. What is it kind of keeping inflation back and how does this play out?

I think the employment numbers from this month, for September, were huge in the sense it was the biggest wage number … and you know how I break the number down. To the nth degree, this was the real deal. Only one month, but still the real deal, and the best wage number we’ve seen since 2007. So, will that continue? We know anecdotal evidence is there. Will this continue over the next couple of months?

If you look at CPI and PPI, the pipeline, the year-over-year dynamics around some of the commodities, God forbid, grains, oil seeds, and tropical commodities started to rally because then you’d have a real problem. Look at what the base models are doing. Look at what energy potentially you’re going to break out here. So, I think there is some inflation coming and it’s apt to push the Fed to have to raise to meet their dot plots, and I think that’s going to be problematic for the equity markets. They’re walking the high wire act with no safety net. It’s a very difficult job.

Mike Gleason: Getting back to metals here for a bit. We would like to give our listeners an update on the silver and gold price rigging scandal that erupted a year and a half ago when Deutsche Bank was forced to acknowledge cheating and turned over mountains of evidence, which may prove damning for a number of other banks. But the courts and regulators have a record of moving slowly, if they do anything at all. Now you’re much closer to the futures markets than we are. Are you aware of any developments on that front and what do you see as the implications of the civil action against the bullion banks? Do you sense that the Deutsche Bank revelations here led to more honest markets, perhaps because of all that evidence struck fear into banker’s hearts or is it more business as usual for these bullion banks who seem to have so much influence in these markets, Greg?

Greg Weldon: I have the sense it’s business as usual. I get the sense that it’s a kind of laissez faire attitude about that because the problem is so big, if we were to actually kind of get unearthed, the impact would be much, much larger and we would know it based on the price section very quickly. It’s a powder keg. It’ll blow at some point. This is something, gosh I’ve been in the business how long, and we’ve been talking about this how long? Really, this goes way, way back. The degree to which it has gotten worse is, I mean, the thing you debate, not whether it exists or not. Is it going to be somehow uncovered to the extent that it causes that kind of disruption? I think again, this is probably fodder for a great movie… a spy movie or whatever.

Sure, there’s probably a lot of that kind of thing going on in background, but in terms of the day to day operation of the trading of these metals, I don’t see any tangible impact in the dealings I have here, no.

Mike Gleason: Well Greg, as we begin to close, give us a sense of what you’re focusing on here, maybe some of the things that we haven’t touched on and then give us a sense of how you’re evaluating these markets for your clients. Do you think it’s time to get defensive, go to cash, favor metals and commodities here as an inflation hedge, or does the wave of exuberance in stocks still have a ways to go? Any final comments or anything else that you want to leave us with today?

Greg Weldon: Well, I think some of that depends on whether they can actually get some kind of job done in Washington where the Republicans finally realize their own necks are on the chopping block here, so let’s finally ban together and get a tax reform package done. We’ll see whether that happens. I think that might be one of those last gas type of moves for the stock market. It could be a “buy the rumor sell the fact,” but I think lot has been priced in and I think there’s still going to be disappointment down the road for that.

I’m watching the consumer specifically. The retail sales numbers have been really poor all year. It’s minuscule gains in discretionary items since January. And the debt numbers are interesting. You’re starting to see a roll over, starting to see rise in delinquency rates. The debt obligations for consumers and for the Federal government, by the way, are high despite the fact that rates are still low. Can you imagine if the Feds actually did push rates a hundred basis points higher over the next however many, 14, 15 months? I think that would have a real reverberating effect on the consumer and on the government where deficits are still increasing and they’re at high levels again. No one talks about it. You have $ 20 trillion dollars in sovereign debt and you’re about to push the five-year note above 2%, which is your trigger to increase cost on funding the debt. Man, the land mines are out there.

I’m watching all of it. That’s what we do for our clients every single day because never before, have you had to be more plugged in. Look at the way things happen so much more quickly now. You asked about what’s the difference from 30 years. So much more availability of news, quickly. But the fact of the matter is, the basic thing that we do hasn’t changed at all, which is dissecting all of it, connecting all the dots, and kind of trying to make it all make sense in terms of what the markets are doing and how you might profit from that.

Mike Gleason: Well Greg, thank you so much for joining us again. We enjoyed it very much and love getting your very studied and experienced outlook on the state of today’s financial world. Now before we let you go, please tell folks about Weldon Financial, how they can find you, and any other information they should know about you and your firm.

Greg Weldon: Sure, thanks, appreciate that. We’re found at WeldonOnline.com. We do Weldon Live, one product, one price. It’s kind of a multi-layered product, although it’s just again, one price. We do daily and we cover daily global macro, fixed income, foreign exchange, stock indexes and ETFs, precious and industrial metals, energy, and agricultural commodities. And we tie them all together and we have what we call our Trade Lab, which is part of Weldon Live. These as specific trading recommendations in all of those sectors, we’re old school futures guys, so that’s kind of the way we approach it. What we find is a lot of family offices or independent brokers or even individuals out there, and there’s no reason with the way your see ETFs now being utilized that the average investor can’t operate more like a hedge fund manager or CTA.

We try and provide rhyme and reason to what’s going on and then specific strategies to take advantage of it. Weldon Live found at WeldonOnline.com.

Mike Gleason: Well great stuff. Thanks so much for your time today, Greg. I hope we can talk again down the road. Take care and we appreciate you coming on.

Greg Weldon: Thanks. No problem, Mike. Any time.

Mike Gleason: Well, that will do it for this week. Thanks again to Greg Weldon of Weldon Financial and WeldonLive. For more information, simply go to WeldonOnline.com and we urge everyone to sign up for a free trial there. Again, you can find all of that information at WeldonOnline.com. Be sure to check that out.

And check back here next Friday for our next weekly Market Wrap Podcast. Until then, this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a great weekend everybody.

Precious Metals News & Analysis – Gold News, Silver News




Economic Slowdown Confirmed: The U.S. Economy Lost Jobs Last Month For The First Time In 7 Years

Don’t worry – even though the employment numbers are terrible the mainstream media insists that everything is going to be wonderful for the U.S. economy in the months ahead.  According to the Bureau of Labor Statistics, the U.S. economy lost 33,000 jobs during September.  That was the first monthly decline in seven years, and as you will see below, overall 2017 is on pace for the slowest employment growth in at least five years.  But the Bureau of Labor Statistics insists that the downturn in September was due to the chaos caused by Hurricane Harvey and Hurricane Irma, and they are assuring us that happier times are right around the corner.

Economists were projecting that we would see an increase of around 80,000 jobs last month, and we need to add at least 150,000 jobs each month just to keep up with population growth.  So the -33,000 number was a huge disappointment.

But even though we lost 33,000 jobs last month, the Bureau of Labor Statistics says that the unemployment rate fell from 4.4 percent to 4.2 percent.

Yes, I know that doesn’t make any sense at all, but that is what they are telling us.

Perhaps if several volcanoes go off inside this country, terrorists detonate a dirty bomb in one of our major cities and Godzilla invades the west coast next month the unemployment rate will drop all the way to zero.

Of course I am being facetious, but I just want to point out the absurdity of what we are being told.  There is no way in the world that the official unemployment rate should be at “a new 16-year low”.

In the end, perhaps September will end up being a bit of an anomaly.  But as I mentioned above, we have been witnessing a broader trend build for months.  According to CNBC, we are on pace for “the slowest jobs growth in at least five years”…

In addition to September’s rough month, the July number was revised lower from 189,000 to 138,000 though August got a bump higher from 156,000. In all, though, 2017 thus far has seen the slowest jobs growth in at least five years.

Let that sink in for a moment.

Employment is not booming.  In fact, things haven’t been this slow “in at least five years”.  An economic slowdown is here, and yet most people are totally oblivious to what is happening.

And let me share something else with you.  The following chart shows the average duration of unemployment since the late 1940s…

This chart shows that workers remain unemployed far longer than they did in the “good old days”, but I want you to pay special attention to the very end of the chart.

The duration of unemployment is really starting to spike up again quite dramatically, and that is a very, very troubling sign for the U.S. economy overall, because spikes in this number almost always correspond with recessions.

But the Bureau of Labor Statistics says that we don’t have anything to be concerned about.  In fact, they are blaming all of the bad numbers from last month on Harvey and Irma

Our analysis suggests that the net effect of these hurricanes was to reduce the estimate of total nonfarm payroll employment for September. There was no discernible effect on the national unemployment rate. No changes were made to either the establishment or household survey estimation procedures for the September figures. For both surveys, collection rates generally were within normal ranges, both nationally and in the affected states. In the establishment survey, employees who are not paid for the pay period that includes the 12th of the month are not counted as employed. In the household survey, persons with a job are counted as employed even if they miss work for the entire survey reference week (the week including the 12th of the month), regardless of whether or not they are paid. For both surveys, national estimates do not include Puerto Rico or the U.S. Virgin Islands.

And the “experts” that are being quoted by the mainstream media are assuring us that “the labor market remains in good shape”

“Despite the decline (in job gains), it’s really clear that the labor market remains in good shape,” says Joel Naroff of Naroff Economic Advisors.

The unemployment rate, which is calculated from a different survey than the headline job totals, edged lower. That’s because gains in the number of people employed outpaced an increase in the labor force, which includes people working and looking for jobs. In that survey of households, workers are counted as employed even if they were temporarily idled by the storms.

Hopefully they are right.

Hopefully happy times are here again and an economic boom is right around the corner.

Unfortunately, the longer term trends tell an entirely different story.  Our economic infrastructure has been gutted, we have shipped millions of good paying jobs overseas, the middle class is slowly being eradicated, and we are living in the terminal phase of the greatest debt bubble in human history.

We have been able to maintain our ridiculously inflated standard of living for an extended period of time by borrowing absolutely colossal mountains of money year after year.  But no debt bubble lasts forever, and this one will not either.

The debt-fueled “prosperity” that we see all around us today is an enormous temporary illusion, and when the illusion collapses the economic pain is going to be greater than anything we have ever seen before in modern American history.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

The Economic Collapse




What Labor Means in Today’s Gig Economy

Labor Day seems like a foreign concept.

That’s not to say that I’m unfamiliar with the art of drinking beer while balancing a plate of barbeque as sweat gets in my eyes during the last days of summer. That one I’ve got covered.

I’m referring to the idea of the labor we’re supposed to honor today, at least as I see it in my mind’s eye.

In my head, labor refers to a bunch of people that punch in at a factory or coal mine, put in a long day of work, punch out, and go home. Probably carrying metal lunch pails. Definitely having a cold one when the day is done.

It’s the stuff of posters from the 1930s about the Civilian Conservation Corps and the Works Progress Administration (the post office offers commemorative stamps like this… kind of cool).

For the most part, those days are long gone. Fewer than 10% of Americans work in manufacturing, or what we typically think of as “labor.”

The biggest growth industry for employment since the financial crisis has been hospitality, which is a nice way of saying wait staff and bartenders.

In the age of microbreweries, we’ve put millions of people to work asking, “Would you like a hearty, hoppy India Pale Ale that was locally brewed on the western shore of the Mississippi River by brothers who named their company after the local high school sports team?” The taste seems immaterial. It’s all about the label.

I’m not knocking these jobs, but they don’t have quite the same ring as someone who can say, “I build cars.”

Yet it’s where we are.

For decades we’ve transitioned from a world where most people work with physical things to a world where most people provide a service. The best example is the explosion of the gig economy.

I’m old enough to think of a gig as a contract to provide musical entertainment. Performers play gigs. Workers work. Not anymore.

My kids think of gigs as any short-term assignment. No strings, no benefits. Consulting firm McKinsey estimates 68 million people, or roughly 43% of Americans in the workforce, do such freelance work.

Workers who choose to perform work on their terms are happier, we’re told. But 20 million of these folks don’t want to be in such jobs. They do it because they can’t find better paying work elsewhere.

My barber drives for Uber on the weekends. And some weeknights. He’s glad for the chance to earn extra income. Investors have rewarded the company with a $ 50 billion-plus valuation. I wonder how much of that $ 50 billion will flow to Uber drivers. Obviously that’s rhetorical. None of it will. Unless they happen to be wealthy angel investors who purchased shares in a private offering and now drive for the company for kicks.

I’m not trying to knock Uber. Or TaskRabbit. Or any other company that facilitates gig work. I’m just noting that the premise makes no sense.

We’re moving toward a world where people are told to celebrate their freedom as mini-entrepreneurs, when the reality is the opposite. It’s true that workers can choose to provide services for such companies, and they aren’t required to take the jobs. But the notion that they could compete with them for business as sole proprietorships is laughable. Employees are free to take the work on the terms provided… or not. And often people choose the work because their primary positions or other opportunities don’t provide enough income.

That’s the labor I see around me today. It’s called the side hustle (really). Everyone seems to be looking for that different income stream that will finally give them enough income, or at least enough stability, to feel secure.

It doesn’t look like a guy with a rivet gun or a sledgehammer. It looks like a woman eating dinner in her car as she travels between her daytime teaching job and her evening appointment for tutoring. It looks like the dental hygienist that also sells real estate, or the construction worker who tends bar on the weekends.

These are the faces of labor. And, chances are, we’ll see many of them today, Labor Day. They won’t be celebrating. They’ll be providing services. They will be showing houses, serving drinks, and even hauling many of us home after we’ve had a few.

So here’s to celebrating those among us that are working harder, and longer, in an economy that seems bent on providing less of some of the things we desire, like security and stability. May they also have the opportunity to rest on this Labor Day, and have a cold one when the day is done.

Thanks,

Rodney Johnson
Follow me on Twitter @RJHSDent

P.S. Are you one of the members of the “gig economy” working on Labor Day? Or are you enjoying a full day off?

Shoot me an email at economyandmarkets@dentresearch.com.

The post What Labor Means in Today’s Gig Economy appeared first on Economy and Markets.

Rodney Johnson – Economy and Markets ()




Our Disneyland Economy

Disneyland is known as a place “where dreams come true” and where every story always has a happy ending.  But there is going to be no happy ending for the U.S. economy.  Wishful thinking has resulted in one of the greatest stock market rallies in history in recent months, but like all childhood fantasies, it won’t last.  The real economy continues to deteriorate, and we can see this even right outside of the gates of Disneyland.  Every night growing numbers of homeless people sleep on the pavement just steps away from “the happiest place on Earth”.  It can be fun to “play make believe” for a while, but eventually reality always catches up with us.

Without a doubt, the stock market has been on a tremendous run.  Since Donald Trump’s stunning election victory in November, the market has been setting record high after record high, and it is now up a total of 17 percent

The Dow Jones Industrial Average recorded its 23rd all time high of 2017 yesterday closing at 21,532.  There have been a total of 120 days where the markets have closed since President Trump’s inauguration on January 20th.  The ‘DOW’ has closed at all time highs 23 of those days for nearly 20% or one-fifth of the days the market has been open.  The market is up 9% since the inauguration. 

Since the election on November 8th the DOW has closed at record highs an amazing 40 times!   Nearly one-fourth or 24% of the 168 days the markets have closed have been record highs since the November 8th election.  The market is up 17% since the election!

If this surge was supported by hard economic data, that would be something to greatly celebrate, but that has not been the case at all.

Instead, stock prices have become completely disconnected from economic reality, and now we are facing one of the greatest stock bubbles of all time.  As Graham Summers has pointed out, stocks are now trading at price to sales ratios that we haven’t seen since the very height of the dotcom bubble…

Earnings, cash flow, and book value are all financial data points that can be massaged via a variety of gimmicks. As a result of this, valuing stocks based on Price to Earnings, Price to Cash Flow, and Price to Book Value can often lead to inaccurate valuations.

Sales on the other hand are all but impossible to gimmick. Either money came in the door, or it didn’t And, if a company is caught faking its sales numbers, someone is going to jail.

So the fact that stocks are now trading at a P/S ratio that matches the Tech Bubble (the single largest stock bubble in history) tells us that we’re truly trading at astronomical levels: levels associated with staggering levels of excess.

There is no possible way that this is sustainable, and just like before the 2008 crisis a whole host of experts are warning that disaster is imminent.  One of them is John Mauldin

Looking with fresh eyes at the economic numbers and central bankers’ statements convinced me that we will soon be in deep trouble. I now feel that it’s highly likely we will face a major financial crisis, if not later this year, then by the end of 2018 at the latest. Just a few months ago, I thought we could avoid a crisis and muddle through. Now I think we’re past that point. The key decision-makers have (1) done nothing, (2) done the wrong thing, or (3) done the right thing too late.

Having realized this, I’m adjusting my research efforts. I believe a major crisis is coming. The questions now are, how severe will it be, and how will we get through it?

And even though the stock market has been surging deeper and deeper into bubble territory in recent months, the middle class has continued to shrink and poverty has continued to grow all over the country.  In fact, because so many homeless people have been sleeping at bus shelters across from Disneyland lately authorities decided to completely remove the benches that they had been sleeping on

The vanishing benches were Anaheim’s response to complaints about the homeless population around Disneyland. Public work crews removed 20 benches from bus shelters after callers alerted City Hall to reports of vagrants drinking, defecating or smoking pot in the neighborhood near the amusement park’s entrance, officials said.

The situation is part of a larger struggle by Orange County to deal with a rising homeless population. A survey last year placed the number of those without shelter at 15,300 people, compared with 12,700 two years earlier.

But simply removing benches will not make the problem go away.

Homelessness has been growing so rapidly in Los Angeles that the the L.A. City Council actually asked Governor Jerry Brown to formally declare a state of emergency.

And in New York City, street homelessness is up 39 percent over the past year.

This is where the real economy is heading, but a rising stock market makes for much happier headlines.

Many major cities around the nation are passing laws to essentially make it illegal to be homeless.  Forcing homeless people to go somewhere else may mask the problem for a while, but it certainly doesn’t do anything to solve it.  In my new book entitled “Living A Life That Really Matters”, I talk about how real love is not just about loving those that are just like us.  Rather, real love is about caring for people no matter what they look like and no matter what they are going through.

Unfortunately, the economic suffering that we are seeing right now is just the beginning.

Just like in 2008, the major financial crisis that is coming is going to greatly accelerate our economic problems.  And just like last time, millions of people are going to lose their jobs, and millions of people are going to lose their homes.

Homelessness is already worse in many parts of the nation that it was during the depths of the last recession, and what we are going to see during the next economic downturn is going to be absolutely unprecedented.

So don’t look down on those that need a helping hand, because in the not too distant future you may find yourself needing some help.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District.  His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

The Economic Collapse




New Normal Could Plunge Economy into Recession

The big news from the Federal Reserve wasn’t the quarter point rate hike (which was expected). The big news was Fed chair Janet Yellen’s announcement of “balance sheet normalization.”

Janet Yellen

Fed Chair Janet Yellen claims the central bank
will soon unwind its balance sheet.

In plain English, the Fed claims it will begin selling off assets from its balance sheet, which remains bloated from previous Quantitative Easing programs. If “normalization” does actually proceed at full speed, it would entail $ 50 billion in financial assets per month being dumped into the market.

Not even Fed officials know how markets will react to the fire sale. But it will likely have the effect of a set of stealth rate hikes. That’s assuming Yellen follows through on her “normalization” threat.

Despite Yellen’s hawkish tone, Fed fund futures markets are pricing in only a 45% chance of another rate hike before the end of the year. The central bank may not get very far in unwinding its balance sheet either, especially given extant economic fragilities.

Retail sales have slumped for four straight months even as consumers ramp up their debt loads to dangerous levels. “Household borrowings have surged to a record $ 12.73 trillion, and the percentage of debt that is overdue has risen for two consecutive quarters,” reports Bloomberg.

With commodity prices and Consumer Price Index readings on the decline in recent months, the Fed now risks pushing the economy into recession.

Of course, things are still going swimmingly on Wall Street. The Dow Jones Industrials closed last Friday at another slight new record high at 21,384.

However, the Nasdaq 100 closed down to a four-week low. Top Nasdaq names such as Apple, Google, and Baidu had been the market leaders. The fact that they are now lagging spells potential trouble for the broader stock market.

Volatility in the stock market has been muted for so long that when fear finally breaks out, the magnitude of the price drops that follow could catch investors by surprise. The upshot of a sell-off in stocks is that it could rekindle a rise in safe-haven demand for the money metals.

Precious Metals News & Analysis – Gold News, Silver News




Over The Last 10 Years The U.S. Economy Has Grown At EXACTLY The Same Rate As It Did During The 1930s

Even though I write about our ongoing long-term economic collapse every day, I didn’t realize that things were this bad.  In this article, I am going to show you that the average rate of growth for the U.S. economy over the past 10 years is exactly equal to the average rate that the U.S. economy grew during the 1930s.  Perhaps this fact shouldn’t be that surprising, because we already knew that Barack Obama was the only president in the entire history of the United States not to have a single year when the economy grew by at least 3 percent.  Of course the mainstream media continues to push the perception that the U.S. economy is in “recovery mode”, but the truth is that this current era has far more in common with the Great Depression than it does with times of great economic prosperity.

Earlier today I came across an article about President Trump’s new budget from Fox News, and in this article the author makes a startling claim…

The hard fact is that the past decade’s $ 10 trillion in deficit spending has produced the worst economic growth as measured by Gross Domestic Product in our nation’s history.  You read that right, in the past decade our nation’s economy grew slower than even during the Great Depression. This stagnant, new normal, low-growth economy is leaving millions of working age people behind who have given up even trying to participate, and has led to a malaise where many doubt that the American dream is attainable.

When I first read that, I thought that this claim could not possibly be true.  But I was curious, and so I looked up the numbers for myself.

What I found was absolutely astounding.

The following are U.S. GDP growth rates for every year during the 1930s

1930: -8.5%
1931: -6.4%
1932: -12.9%
1933: -1.3%
1934: 10.8%
1935: 8.9%
1936: 12.9%
1937: 5.1%
1938: -3.3%
1939: 8.0%

When you average all of those years together, you get an average rate of economic growth of 1.33 percent.

That is really bad, but it is the kind of number that one would expect from “the Great Depression”.

So then I looked up the numbers for the last ten years

2007: 1.8%
2008: -0.3%
2009: -2.8%
2010: 2.5%
2011: 1.6%
2012: 2.2%
2013: 1.7%
2014: 2.4%
2015: 2.6%
2016: 1.6%

When you average these years together, you get an average rate of economic growth of 1.33 percent.

I thought that was a really strange coincidence, and so I pulled up my calculator and ran all of the numbers again and I got the exact same results.

The 1930s certainly had more big ups and downs, but the average rate of economic growth during that decade was exactly the same as we have seen over the past 10 years.

And of course the early 1940s turned out to be a boom time for the U.S. economy, while it appears that our rate of economic growth is actually slowing down.  As I noted yesterday, U.S. GDP growth during the first quarter of 2017 was just 0.7 percent.

But you don’t hear any talk like this on the mainstream news, do you?

Instead, they tell us that everything is just peachy.

I often wonder what things would be like right now if Barack Obama and his minions in Congress had not added more than 9 trillion dollars to the national debt.  By stealing all of that money from future generations of Americans and spending it now, Obama was able to artificially prop up the U.S. economy.  If we were able to go back and remove 9 trillion dollars of government spending from the economy over the past 8 years, we would be in a rip-roaring economic depression right now.  For an extended analysis of this, please see my previous article entitled “The Shocking Truth About How Barack Obama Was Able To Prop Up The U.S. Economy”

But even though we have been adding more than a trillion dollars to the national debt each year, and even though the Federal Reserve pushed interest rates all the way to the floor during the Obama era, the U.S. economy has not grown by three percent or more on an annual basis since 2005.

When you take an honest look at the numbers, there is no way that anyone can possibly claim that the U.S. economy is doing well.  The best that you can say is that we have been staving off a complete economic meltdown and another Great Depression, but of course the measures that our leaders have been taking to do this have just been making our long-term problems even worse.

I feel bad for President Trump, because he has inherited the biggest economic mess in U.S. history.  When we finally reach the point when it is impossible to artificially prop up the U.S. economy any longer, he is going to get most of the blame, but he won’t deserve it.

It is not going to be possible for Trump or anyone else to fix our system, because it was fundamentally flawed from the very beginning.  The Federal Reserve was designed to create an endless spiral of government debt, and since the day it was created the U.S. national debt has gotten more than 5000 times larger and the value of the U.S. dollar has declined by about 98 percent.

If we truly want to fix the economy, the Federal Reserve must be abolished.  If I was President Trump, I would look to start issuing debt-free U.S. currency just like President Kennedy did in 1963 as soon as possible.

In addition, we need to push tax rates as low as possible.  Personally, I would like to see the day when the personal income tax is completely eliminated and the IRS is shut down.  The greatest period of economic growth in all of U.S. history was when there was no income tax and no Federal Reserve.  America once thrived in such an environment, and I believe that we can do it again.

Of course we need to also dramatically reduce the size and scope of the federal government.  Our founders intended to create a very limited federal government, but instead the left has just kept pushing to make it larger and larger.

Businesses all over America are being strangled to death by mountains of federal regulations, and if we could just get the government off of their backs the business community could start thriving again.  There are quite a few government agencies that could be shut down entirely, and I think that the EPA would be a good place to start.

Once upon a time the United States showed the world the power of free markets and capitalism, and if we want to make America great again, we should go back and do the things that made America great in the first place.

But would the American people be willing to go down that path?

The Economic Collapse