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Is US Economic Resilience Peaking?

Nothing lasts forever, as any student of the business cycle knows. But recognizing that the economy is dynamic, and constantly shape shifting, doesn’t…

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Nothing lasts forever, as any student of the business cycle knows. But recognizing that the economy is dynamic, and constantly shape shifting, doesn’t make it any easier to spot trend changes in real time.

Most observers were late to the party in late-2022 and early 2023 in recognizing that last year’s slowdown in US economic activity was reversing. The macro trend in America certainly looked worrisome in the final months of 2022. But there were early hints that change was brewing.

In early November, CapitalSpectator.com noted that a pair of propriety US business cycle indicators were showing signs of stabilizing and looked set to “stay moderately positive in the immediate future.” It wasn’t fully clear at the time, and CapitalSpectator.com didn’t fully buy into the idea until late-spring 2023. But history now shows that November ended up as a turning point that would evolve into the “resilience” diagnosis for US economic activity in 2023 – resilience that continues, at least for the moment.

And yet the clues are adding up that the resilience may be peaking. To be clear: the odds that an NBER-defined recession has started or is imminent remains a low-probability risk, based on reviewing a wide number of economic and financial-markets indicators. The median nowcast for US GDP in Q3, for instance, continues to reflect moderate growth. But the tide may be in the early stages of peaking/turning, again, albeit modestly, like a thief in the night.

It’s easy to cherry pick a few indicators to make this point, such as the ongoing slide in job openings, which fell in June to the lowest level since March 2021. A more compelling clue is the ongoing but-still gradual decline in the year-over-year growth of nonfarm payrolls, which eased to a 2.2% through July. That’s still a healthy rise, but as each month posts a softer advance, the tipping point for the labor market at some point in the future draws ever closer and clearer.

The possibility of interest rates staying elevated, or perhaps going higher, isn’t helping. Last week Federal Reserve Chairman Powell said: “Although inflation has moved down from its peak — a welcome development — it remains too high.” He added that “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”

Talk is cheap and your editor prefers to focus on the data, particularly a broad, carefully diversified measure of US economic activity. That includes the Economic Trend Index (ETI) and Economic Momentum Index (EMI) that are part of the core analytics for weekly updates of The US Business Cycle Risk Report. As noted in this week’s edition for subscribers, the forward estimates for ETI and EMI posted modest downturns for September – the first declines vs. the previous month recorded this year.

For context, let’s start with the historical view of ETI and EMI. With the benefit of hindsight, the US economic rebound that started in late-2022 is clear and remains intact through July.

The challenge, as always, is modeling current conditions and the very-near-term future. (As a digression, the popular art of trying to forecast economic conditions more than a month or two ahead becomes increasingly pointless/hopeless the further out one looks, but I digress). A relatively methodology developed for The US Business Cycle Risk Report is using an ARIMA model to project each of the 14 indicators in ETI and EMI into the immediate future. This approach has proven valuable for quantitatively guesstimating the aggregated data points for ETI and EMI over the next 1-2 months. On that basis, it appears that the US economic resilience for 2023 may be peaking.

To be fair, it’s premature to take this apparent shift as definitive. Incoming data over the next several weeks may confirm or reject the preliminary trend change. It’s also possible that the moderate growth for the US economy will continue for some period of time, rather than accelerate or decelerate.

Meantime, I’m on peak watch for the US. It could be a false warning, but it’s too soon to tell. While we’re monitoring the numbers in the days and weeks ahead, it’s useful to remember that it’s all too easy to assume that recent economic activity is the best estimate of near-term future activity. That’s true most of the time… until it isn’t.


How is recession risk evolving? Monitor the outlook with a subscription to:
The US Business Cycle Risk Report


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The Year Of Cascading Crises

The Year Of Cascading Crises

Authored by James Rickards via DailyReckoning.com,

I often write about different crises, but usually one at…

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The Year Of Cascading Crises

Authored by James Rickards via DailyReckoning.com,

I often write about different crises, but usually one at a time. Whether it’s a market crash, recession, bank failures, etc. I take them on an individual basis.

But what about a cascade of crises? What about a situation in which one crisis comes after another for a prolonged period? Each crisis might be manageable, but the sheer volume of crises and their cumulative effect might push society to the breaking point.

It may seem hyperbolic at first glance, but it’s not — it’s entirely plausible. Now, I’m not necessarily predicting that we’ll get a cascade of crises. But it’s possible, and you should be prepared just in case.

That’s because it looks like 2024 might be a year in which the crises do cascade. And the crises will not be natural disasters (although that could happen) but more like social and political disasters.

Here’s what might play out over the next 10 months and the reasons why:

Much of what is to come is in response to the likely victory of Donald Trump in the race for the presidency. One cannot overstate the sheer fear of Trump by the globalists, Davos crowd, progressives, climate alarmists, DEI gurus and just about anyone else who can’t stand Trump.

This fear often manifests itself in the form of Trump derangement syndrome (TDS), which is a genuine form of mental illness, not just a simple disagreement with Trump’s policies. And TDS is contagious.

I’m not saying this to defend Trump (he has many flaws); I’m just pointing out the degree to which his critics hate and fear him.

Confidence in the Rule of Law Is Gone

The key question is:

“What would the anti-Trumpers in government and the media do to stop Trump?”

The answer is:

“Whatever it takes.”

Trump is not just an opposing politician; he’s an existential threat to a 50-year-old globalist, anti-nationalist agenda. To keep him out of the White House, his political opponents have resorted to lawfare: the use of law to handicap a political opponent.

We see this in the New York civil case in which a judge has now ruled that Trump and his companies must pay a $355 million fine (in addition to what may amount to $100 million in interest payments) for a non-crime. Trump simply did not commit fraud under any plausible interpretation of the law. No one even claims to have been defrauded.

There’s also the defamation verdict awarding $83 million to a plaintiff that is out of all proportion to any actual damages, and the classified documents case in Florida.

We also see elite attacks in the Jan. 6 case in Washington, D.C., the notorious Stormy Daniels hush money case brought by the biased and incompetent N.Y. District Attorney Alvin Bragg, the mass RICO case brought by the unethical and compromised Fulton County, Georgia, district attorney, Fani Willis — and finally the efforts to kick Trump’s name off the ballot using Section 3 of the 14th Amendment by claiming Trump is an “insurrectionist.”

Dubious at Best

All of these cases are legally dubious at best. While I’m not a constitutional scholar, I am an attorney with decades of legal experience. And based on that experience, it’s clear that these cases are politically motivated. But in their zeal to get Trump, prosecutors and judges may have overreached.

The Washington, D.C., case may be dismissed because the U.S. special prosecutor was not properly appointed under Department of Justice rules. There are also presidential immunity issues pending before the Supreme Court.

Meanwhile, the Georgia case may also be dismissed because of unethical conduct and lack of disclosure by Fani Willis. Damages in the defamation case may be greatly reduced on appeal.

Likewise, the Stormy Daniels case is on thin legal ice. And the Supreme Court is likely to rule any day that the 14th Amendment insurrection clause does not apply to Trump’s actions.

Meanwhile, it’s difficult to see how the Florida classified documents case can result in a conviction after the kid gloves treatment given to Joe Biden in his classified documents case.

And Trump can appeal the New York civil ruling, although it’ll be more difficult than a standard appeal because under the statute, Trump would have to turn over the entire $450 million while the appeal is decided. Trump’s rich, but that’s a lot of money even for a guy like Trump to round up.

New York Gov. Kathy Hochul has assured nervous New York business owners that they have nothing to fear from this ruling, urging them to remain in New York. But that just proves that this case was about nothing more than taking down Trump.

The Damage Is Done

The fact that Trump may survive this legal onslaught (or issue a self-pardon upon election) does not alter the damage done.

Confidence in the rule of law has been badly eroded. The biased and unbalanced application of the law to Trump has increased the already extreme polarization that exists in the U.S. This polarization is the foundation for the other social dysfunctions to follow.

Here’s a summary of the social and infrastructure crises that may follow on the political crisis described above:

  • Energy shortages and blackouts due to Green New Scam policies and the simple physics of trying to maintain a baseline load in the power grid using intermittent sources such as windmills and solar
  • A new pandemic promoted to impose unnecessary lockdowns that act as cover for ballot-box stuffing, extensive ballot harvesting, drop-box abuse and other scams intended to rig the vote for Biden
  • A stock market meltdown as Congress tries to reduce out-of-control fiscal deficits and markets realize that excessive government spending was the only thing keeping the economy going in the first place
  • The rollout of central bank digital currencies (CBDCs) that will be used as a surveillance tool to identify those whom Biden calls “enemies of the people.” The targets will be Trump supporters and MAGA Republicans
  • Chinese hacking of critical infrastructure systems including air traffic control, banking and capital markets.
  • As these crises cascade, don’t be surprised if the White House imposes martial law and even takes steps to suspend the elections.

Blood in the Streets

One event which I find highly likely and a possible cover for some of these other events is blood in the streets of Chicago from Aug. 19–21, 2024. That’s the time and place of the Democratic National Convention to nominate their candidate for president.

The convention will likely come under attack from Antifa, the pro-Palestinians, climate activists and others. The new mayor of Chicago, Brandon Johnson, is even more radical than Lori Lightfoot. He will let the demonstrators do what they want and tell the police to stand down. The riots, looting, arson and violence will take on a life of their own.

A good example of this is found in Norman Mailer’s book Miami and the Siege of Chicago (1968), which covered the riots at the Democratic convention (also in Chicago) in 1968 at the height of the war in Vietnam.

The difference between then and now is that in 1968, Chicago Mayor Richard Daley let the police pound the protestors into submission. This time, Brandon Johnson will let the protestors tear up the city. In any case, events of this type can be a catalyst for extreme remedies coming from the White House that could then be used to manipulate election results.

I realize that may sound paranoid or conspiratorial. But you have to realize the lengths to which these political operators will go to stop Trump. Once you do, you’ll see it’s not nearly as far-fetched.

What Can You Do to Survive?

The events I’m talking about would likely result in market turmoil. That’s why it’s prudent to increase your cash allocation, decrease your stock allocation (especially tech stocks) and have gold bullion coins and at least one monster box (containing 500 one-ounce American Silver Eagles available from the U.S. Mint). Land and fine art are other valuable assets.

Basically, you want assets that are not vulnerable to bank failure and are not in digital form because of hacking and power grid failures. If you are in stocks, I would allocate funds to major oil companies, major defense contractors, mining companies and agriculture firms such as Cargill and ADM. Treasury notes are another good play because interest rates should plunge in any recession emerging from the chaos.

Again, I’m not making a hard prediction that these events will occur. I’m simply stating that there’s a genuine possibility that they may occur, and that you should be prepared.

And as they say, an ounce of prevention is worth a pound of cure.

Tyler Durden Wed, 02/21/2024 - 16:15

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The Fed’s Big Problem, There Are Two Economies But Only One Interest Rate

The Fed’s Big Problem, There Are Two Economies But Only One Interest Rate

Authored by Mike Shedlock via MishTalk.com,

On average, the economy…

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The Fed's Big Problem, There Are Two Economies But Only One Interest Rate

Authored by Mike Shedlock via MishTalk.com,

On average, the economy looks OK. But averages are misleading. Several large groups of people are struggling. They all have one thing in common.

Case-Shiller home price index, CPI rent index, and the index of hourly earnings for production and nonsupervisory workers.

Who’s Unhappy?

Those looking to buy a home but cannot afford the record high prices, are not faring well in this economy.

The last great time to buy a home was in 2012. Over the next eight years, home prices moved further and further away from wages.

When the Covid pandemic hit in 2020, we had record QE, record fiscal stimulus, mortgage rates hit record lows, and inflation hit the highest levels in 40 years.

In response, home prices soared out of sight. Worse yet, the price of rent rose at least 0.4 percent for 28 straight months.

Rent of Primary Residence vs OER

Data from the BLS, chart by Mish

Rent vs OER Chart Notes

  • OER stands for Owners’ Equivalent Rent. It is the price one would pay to rent their own house, unfurnished without rent.

  • Rent of primary residence is just what one would expect. It is measured price of rent, unfurnished, without utilities.

Mass Confusion Over OER

Contrary to widespread myth, OER is a measured price with very minor imputations that do not matter. OER is designed to track rent prices and it does. It is a measured price.

Much of the confusion comes from a misquoted BLS statement on OER, emphasis mine.

The expenditure weight in the CPI market basket for OER is based on the following question that the Consumer Expenditure Survey asks of consumers who own their primary residence: “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?

Note that these responses are not used in estimating price change for the shelter categories, only the weight.

People quote that question as if that is how the BLS measures prices. It doesn’t. Prices, except for minor, irrelevant imputations, are based on actual measured rents.

No One Pays OER

The problem with OER is the weight not the measure. No one actually pays OER. Rather, people pay mortgages.

Yet, OER it is the single largest component of the CPI with a weight of 26.769 percent. Rent has a weight of 7.671 percent.

Many people conclude that the CPI is overstated because no one pays OER. The problem with this idea is home prices are at record highs and home prices are not in the CPI at all.

Homes are not in the CPI because economists consider them a capital expense not a personal expense.

But so what? Inflation matters not just consumer inflation. The Fed has made a big mess of things by ignoring obvious housing bubbles.

30-year mortgage Rates

Mortgage rates courtesy of Mortgage News Daily, annotations by Mish

When the Fed slashed interest rates to zero, mortgage rates fell below 3.0% for an extended period allowing everyone to refinance at 3.0 percent or below. Most did.

OER rose from 332 to 403 between January of 2020 and January of 2024. That’s a gain of 21.4 percent.

Rent rose from 338 to 412. That’s a gain of 21.9 percent.

Whereas the renter is struggling, the homeowner refinanced lower putting extra money in his pocket every month.

Home owners also benefitted from rising wages, rising value of their home and a stable, not rising mortgage payment.

Winners and Losers

  • The homeowners are generally doing OK. The home ownership rate is 65.7 percent.

  • The 34.3 percent who rent are generally not doing OK.

The study did not break things down by home owners vs renters, but I suspect most of the use is by renters.

According to the latest CPI report, rent was up at least 0.4 percent for the 29th straight month. Shelter, a broader category, rose 0.6 percent. Food rose 0.4 percent.

CPI data from the BLS, chart by Mish

Whereas home owners have a fixed payment, likely refinanced lower than their initial mortgage, renters faces huge increases, not every month, but once a year, big bang.

For discussion please see Another Hotter Than Expected CPI Led by Shelter, Up Another 0.6 Percent

The stress is easy to spot by demographics.

Credit Card and Auto Delinquencies Soar

Credit card debt surged to a record high in the fourth quarter. Even more troubling is a steep climb in 90 day or longer delinquencies.

Record High Credit Card Debt

Credit card debt rose to a new record high of $1.13 trillion, up $50 billion in the quarter. Even more troubling is the surge in serious delinquencies, defined as 90 days or more past due.

For nearly all age groups, serious delinquencies are the highest since 2011 at best.

Auto Loan Delinquencies

Serious delinquencies on auto loans have jumped from under 3 percent in mid-2021 to to 5 percent at the end of 2023 for age group 18-29.

Age group 30-39 is also troubling. Serious delinquencies for age groups 18-29 and 30-39 are at the highest levels since 2010.

For further discussion please see Credit Card and Auto Delinquencies Soar, Especially Age Group 18 to 39

Generational Homeownership Rates

Home ownership rates courtesy of Apartment List

The above chart is from the Apartment List’s 2023 Millennial Homeownership Report

Those struggling with rent are more likely to Millennials and Zoomers than Generation X, Baby Boomers, or members of the Silent Generation.

The same age groups struggling with credit card and auto delinquencies.

On Average Everything is Great

Average it up as Fed and all the clueless economic and political writers do, and things look great.

This is why we have seen countless stories attempting to explain why people should be happy.

Krugman Blames Partisanship

OK, there is a fair amount of partisanship in the polls.

However, Biden isn’t struggling from partisanship alone. If that was the reason, Biden would not be polling so miserably with Democrats in general, blacks, and younger voters.

In addition to Biden’s Age and Senility, this allegedly booming economy left behind the renters and everyone under the age of 40 struggling to make ends meet.

Powell Pleads Patience

In Jerome Powell’s Interview with 60 Minutes, the Fed Chairman Tells 60 Minutes US Fiscal Path is Unsustainable

Powell: When high inflation really threatens to become persistent, we use our tools to bring down inflation. It’s very important for that young couple — and particularly for younger couples starting out who may not have great financial means, that we succeed in this effort.

60 Minutes: You’re asking the American people for patience?

Powell: Yes. And I think people have been patient and have been through a pretty difficult time. And I think now we’re coming through that time and starting to feel a little bit better about things.

Powell, Krugman, and most of the economic writers, even at the Wall Street Journal have not managed to figure out over a third of the nation is struggling.

Many Are Addicted to “Buy Now, Pay Later” Plans

Buy Now Pay Later, BNPL, plans are increasingly popular. It’s another sign of consumer credit stress.

For discussion, please see Many Are Addicted to “Buy Now, Pay Later” Plans, It’s a Big Trap

The study did not break things down by home owners vs renters, but I strongly suspect most of the BNPL use is by renters.

What About Jobs?

Jobs Soar but Full Time Employment Is Barely Changed Since May 2022

Nonfarm payrolls and employment levels from the BLS, chart by Mish.

But hey, that’s OK because on average, the economy is great. Or do we really mean, on average the stock market is great, and the average homeowner is fine?

Hello Mr. Powell

There are two economies (the homeowners/asset holders and everyone else). However, there is only one interest rate. Patience please says Powell.

Lowering rates risks risks fueling the housing bubble and the most expensive stock market in history.

Hello Mr. Powell, it’s your move.

Tyler Durden Wed, 02/21/2024 - 07:20

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Dozens Of Major Companies Say 2024 Will Be The Year Of Cost Cutting

Dozens Of Major Companies Say 2024 Will Be The Year Of Cost Cutting

We already know that the Biden administration and the BLS are ignoring…

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Dozens Of Major Companies Say 2024 Will Be The Year Of Cost Cutting

We already know that the Biden administration and the BLS are ignoring the massive layoffs happening across corporate America in favor of pushing some asinine narrative that 'Bidenomics', whatever that even means, is somehow creating jobs other than 2nd and 3rd jobs for senior citizens driving Uber when they should be retired. 

Now, it's becoming clear that 2024 could be the year when corporations continue 'cost cutting', which could mean a number of strategies, almost all of which result in less employees and less pay instead of more. 

Executives from various industries, including toy, cosmetics, and technology sectors, are cutting costs and jobs, even in profitable companies such as Mattel, PayPal, Cisco, Nike, Estée Lauder, and Levi Strauss, CNBC wrote this week.

Macy's plans to shut five stores and cut over 2,300 jobs, while airlines like JetBlue and Spirit offer buyouts, and United reduces in-flight services. This trend is driven by consumer caution and investor pressure for companies to adapt to changing demand and higher expenses, the report says.

Significant labor contracts in sectors like airlines and UPS have raised costs, challenging businesses accustomed to passing these on to consumers. Remember those celebrations people were having about UPS drivers winning their new contracts just months ago? UPS is already laying off drivers as a result.

Walmart is expanding its store network, contrasting with the broader cost-cutting movement. Major banks have already reduced their workforce significantly, anticipating economic shifts. U.S. companies announced significant job cuts in January, indicating a focus on profit optimization amid steady earnings reports without relying on substantial price or sales increases.

A full list of major companies that have laid off workers or implemented strategies to cut costs include:

  • Mattel
  • PayPal
  • Cisco
  • Nike
  • Estée Lauder
  • Levi Strauss
  • Macy’s
  • JetBlue Airways
  • Spirit Airlines
  • United Airlines
  • UPS
  • Meta (parent of Facebook and Instagram)
  • Amazon
  • Alphabet (parent of Google)
  • Microsoft
  • Warner Bros. Discovery
  • Disney
  • Paramount Global
  • Comcast (parent company of NBCUniversal)
  • Delta Air Lines
  • General Motors
  • Ford Motor
  • Stellantis
  • Chipotle
  • Wells Fargo
  • Goldman Sachs
  • Walmart
  • Target
  • Home Depot

Meta's restructuring in 2023 set a precedent for tech giants like Amazon, Alphabet, Microsoft, and Cisco to reduce their workforces. But the trend extends beyond tech, with UPS cutting 12,000 jobs and others in retail and entertainment also announcing layoffs.

Significant cost savings have been announced by major corporations, including Warner Bros. Discovery and Disney, with the latter aiming for $7.5 billion in savings.

Paramount Global and NBCUniversal have also trimmed their staffs. Cost-cutting measures have reached various sectors, including airlines adjusting services and deferring expenses, and automakers scaling back investments due to challenges in demand and EV adoption.

“You’re seeing a rebalancing happening in the labor markets, in the capital markets. And that rebalancing is still going to play out and gradually lead to a more sustainable environment of lower inflation and lower interest rates, and perhaps a little bit slower growth, said Gregory Daco, chief economist for EY.

He continued, telling CNBC: “You are in an environment where cost fatigue is very much part of the equation for consumers and business leaders. The cost of most everything is much higher than it was before the pandemic, whether it’s goods, inputs, equipment, labor, even interest rates.”

Even Chipotle is experimenting with robots to boost efficiency. These adjustments reflect a broader recalibration after the pandemic's disruptions, with companies aiming for a sustainable balance in a potentially slower economic growth environment.

Tyler Durden Wed, 02/21/2024 - 05:45

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