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Why Are Wal-Mart And Boeing Laying Off Workers If The U.S. Economy Is In Good Shape?

wal-mart-photo-by-mikemozartjeepersmediaThe stock market has been on quite a roll in recent weeks, but signs of trouble continue to plague the real economy.  Earlier this week, I talked about the “retail apocalypse” that is sweeping America.  Major retail chains such as Sears and Macy’s are closing stores and laying off workers, but I didn’t think that Wal-Mart would be feeling the pain as well.  Unfortunately, that is precisely what is happening.  USA Today is reporting that approximately 1,000 jobs will be cut at Wal-Mart’s corporate headquarters in Bentonville, Arkansas by the end of this month…

Walmart’s plan to lay off of hundreds of employees is the latest ripple in a wave of job cuts and store closures that are roiling the retail industry.

The world’s largest retailer is cutting roughly 1,000 jobs at its corporate headquarters in Bentonville, Ark., later this month, according to a person familiar with the matter who was not authorized to speak about it.

The company is saying that these cuts are necessary because Wal-Mart is always “looking for ways to operate more efficiently and effectively“.  But something doesn’t smell right here.  You don’t get rid of 1,000 employees at your corporate headquarters if everything is just fine.

I have driven past Wal-Mart’s headquarters in Bentonville a number of times, and it is in a beautiful part of the country.  Bentonville and the surrounding areas had been booming, but it looks like times may be changing.

Meanwhile, there are signs of trouble out on the west coast as well.  The Los Angeles Times is reporting that there is going to be a new round of engineering job cuts at Boeing…

Boeing Co. has internally announced a new round of employee buyouts for engineers companywide, including in Southern California, and warned that layoff notices will follow later this month to engineers in Washington state, where the company has a large presence.

Management did not cite a target for the number of projected job cuts.

The news comes after company Vice Chairman Ray Conner and the new chief executive of Boeing Commercial Airplanes, or BCA, Kevin McAllister, warned in December of the need to aim for further cuts in 2017.

And according to Boeing spokesperson Doug Alder, similar job cut announcements are coming for other classes of workers as well.

So why is Boeing getting rid of so many employees?

Well, the truth is that Boeing’s business is way down.  The following comes from Wolf Richter

Business has been tough. In 2016, deliveries fell by 14 jets from a year ago, to 748. Net orders dropped 13% from an already rotten level in 2015, to just 668, down 53% from 2014. And the lowest level since 2010!

When the economy is doing well, air traffic tends to rise, and when the economy is doing poorly it tends to go down.

Needless to say, the fact that Boeing is doing so poorly does not bode well for the future.

In addition to Wal-Mart, another major retailer that is letting people go is Petco

Petco is cutting 180 positions with about 50 at its San Diego headquarters, the pet supply retailer confirmed Wednesday.

The company made the cuts across its workforce and include both existing and open positions.

Petco has about 650 workers at its headquarters in Rancho Bernardo. It employs 27,000 in the U.S.

My wife and I have three cats, and even though Petco tends to be a bit overpriced we have always appreciated the work that they do.

Unfortunately, when the economy gets tough spending on pets tends to be one of the first things to get cut back, and this current trouble at Petco could be a sign that rough sledding is ahead for the entire economy.

Of course your personal perspective on these things is likely to be very heavily influenced by your immediate surroundings.  Those that live in wealthy enclaves of major cities such as San Francisco, New York City or Washington D.C. may be wondering how anyone could possibly be talking about economic trouble right now.

But if you live in economically depressed areas of Appalachia or the upper Midwest, it may seem like the last economic recession never even ended.

There have been pockets of economic prosperity in recent years, and this has resulted in some people becoming exceedingly wealthy.  Meanwhile, things have just continued to become even tougher for millions of other families as the cost of living always seems to grow faster than their paychecks do.

If you are in the top one percent of all income earners, maybe to you it seems like things have never been better.  But most of the country is living paycheck to paycheck and is just struggling to survive from month to month.  The following comes from CNN

The rich are money-making machines. Today, the top mega wealthy — the top 1% — earn an average of $1.3 million a year. It’s more than three times as much as the 1980s, when the rich “only” made $428,000, on average, according to economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman.

Meanwhile, the bottom 50% of the American population earned an average of $16,000 in pre-tax income in 1980. That hasn’t changed in over three decades.

The workers being laid off at the companies discussed above are real people with real hopes and real dreams.  Perhaps many of them will be able to land other employment fairly soon, but the truth is that the job market is really tough in many areas of the country right now.

Finding a good job that will allow you to pay the bills and support your family is not easy.  You may find that out the hard way if you end up losing your current job during the economic troubles that will come in 2017.

Earlier today, I came across an excellent article by Gail Tverberg that detailed a whole bunch of reasons why a significant economic downturn appears to be imminent in 2017.  If you would like to read it, you can find it here.  She points to many of the same things that I have been pointing to for a very long time.

Even though economic conditions were fairly stable throughout 2016, our long-term problems just continued to get even worse.  So the truth is that we are more primed for a major crisis today than we have been at any point since the last recession.

My hope is that things will not be nearly as bad in 2017 as Gail Tverberg and others are projecting that they could be, but the warning signs are definitely there, and it isn’t going to take much to push the U.S. economy off the rails.

It’s A Retail Apocalypse: Sears, Macy’s And The Limited Are All Closing Stores

retail-apocalypse-public-domainIt has only been two weeks since Christmas, and already we are witnessing a stunning bloodbath of store closings.  Macy’s shocked the retail industry by announcing that they will be closing about 100 stores.  The downward spiral of Sears hit another landmark when it was announced that another 150 Sears and Kmart stores would be shutting down.  And we have just learned that The Limited is immediately closing all stores nationwide.  If the U.S. economy is doing just fine, then why are we experiencing such a retail apocalypse?  All over America, vast shopping malls that were once buzzing with eager consumers now resemble mausoleums.  We have never seen anything quite like this in our entire history, and nobody is quite sure what is going to happen next.

Not too long ago I walked into a Macy’s, and it was eerily quiet.  I stumbled around the men’s department looking for something to buy, but I was deeply disappointed in what was being offered.  After some time had passed, an employee finally noticed me and came over to help, but they didn’t have anything that I was looking for.

And it is a sad thing, because over the past several years when I have gone into Macy’s looking to spend money, most of the time I have come out of there without spending a penny.  Macy’s has made some very bad decisions recently, and I am hoping that they can still turn things around.  But for the moment, they are closing stores and cutting jobs.  The following comes from the New York Times

Struggling with sagging sales over another crucial holiday shopping season, Macy’s announced on Wednesday that it was eliminating more than 10,000 jobs as part of a continuing plan to cut costs and close 100 stores.

Macy’s, the country’s largest department store chain, said sales at its stores had fallen 2.1 percent in November and December compared with the same period in 2015. Terry J. Lundgren, the company’s chairman and chief executive, said in a statement that while the trend was “consistent with the lower end of our guidance, we had anticipated sales would be stronger.”

Another legendary retailer that really does not have any hope left is Sears.  Every year they just keep closing even more stores, and because they are losing so much money they don’t have anything to invest in the stores that remain.  As a result, the state of many Sears locations is downright embarrassing at this point

But the retailer, famous for selling everything from shoes to vacuum cleaners to whole houses, is facing its biggest crisis ever. It’s closing hundreds of stores. Others are in shambles, with leaking ceilings and broken escalators. In some, employees hang bedsheets to shield shoppers from sections that stand empty.

Since the early portion of 2013, sales are down an astounding 37 percent for the company.  Sears is currently more than 1.6 billion dollars in debt, and they are losing more than a billion dollars a year.

They keep closing stores in a desperate attempt to stop the bleeding, but it hasn’t worked.

In 2010, Sears had 3,555 stores.

Last year, Sears had 1,503 stores, and now a whole bunch more are being shut down.

But everyone can see where this is going.  As I have stated repeatedly, Sears is going to zero, and many of the experts completely agree with me

“They are going out of business,” said Van Conway, an expert in bankruptcy and debt restructuring and CEO of Van Conway & Partners. “This snowball is 90% of the way to the bottom of the hill.”

Of course Sears is still surviving for the moment, and that is more than can be said for The Limited.

Back in the old days, it seemed like every mall had one of their stores.  I remember passing it on my way to Orange Julius and Herman’s World of Sporting Goods.

But now they are shutting down every single location and will be online only

American malls just got emptier.

The Limited, a once-popular women’s clothing brand that offers casual attire and workwear, no longer has any storefronts.

On Saturday, a message on the store’s website read, “We’re sad to say that all The Limited stores nationwide have officially closed their doors. But this isn’t goodbye.” The website will still be up and running and will continue to ship nationwide, the company said.

In addition to Macy’s, Sears and The Limited, other huge names in the retail industry have also fallen on hard times and have had to shut stores over the past 12 months.  The following comes from the Washington Post

The retail environment has proved challenging for a variety of stores: Sports Authority went out of business in 2016, shuttering more than 460 locations in U.S. malls and strip malls. PacSun, Aeropostale and American Apparel each have filed for bankruptcy protection in the past year and are aiming to reorganize and revive their businesses.

So why is this happening?

Without a doubt, our shopping habits have changed.  And in the online world, many of these retailers are being absolutely crushed by competition from Amazon and other tech companies that developed online infrastructure before they did.  I know that my wife and I actually prefer to shop online for many things when possible, and I anticipate that the share of retailing done online will only continue to grow in this country.

But let us also not underestimate the impact that the stagnating economy is having on ordinary consumers.  Thanks to the last eight years, approximately two-thirds of all Americans are living paycheck to paycheck.  More than a third of all Americans have a debt that is at least 180 days past due, and the rate of homeownership has been hovering near the lowest level that we have seen in about 50 years.  As you read this article, more than 95 million Americans are not in the labor force, and that number has grown by 18 percent under Barack Obama.  Homelessness in New York City and other major cities is at a record high, and as a nation we have accumulated the largest mountain of debt in the history of the world.

Let us hope that things can be turned around, but if current trends continue the retail apocalypse is just going to go from bad to worse, and we will continue to see lots of headlines about more stores closing down.

U.S. Economic Confidence Surges To The Highest Level That Gallup Has Ever Recorded

donald-trump-accepts-the-nomination-public-domainGallup’s U.S. Economic Confidence Index has never been higher than it is today.  The “Trumphoria” that has gripped the nation ever since Donald Trump’s miraculous victory on election night shows no signs of letting up.  Tens of millions of Americans that were deeply troubled by Barack Obama’s policies over the last eight years are feeling optimistic about the future for the first time in a very long time.  And it is hard to blame them, because what we have already seen happen since November 8th is nothing short of extraordinary.  The stock market keeps hitting record high after record high, the U.S. dollar is now the strongest that it has been in 14 years, and CEOs are personally promising Trump that they will bring jobs back to the United States.  These are things worth getting excited about, and so it makes perfect sense that Gallup’s U.S. Economic Confidence Index has now risen to the highest level that Gallup has ever seen

Americans’ confidence in the economy continues to gradually strengthen after last month’s post-election surge. Gallup’s U.S. Economic Confidence Index averaged +10 for the week ending Dec. 18, marking another new high in its nine-year trend.

The latest figure is up slightly from the index’s previous high of +8 recorded in both of the prior two weeks. The first positive double-digit index score since the inception of Gallup Daily tracking in 2008 reflects a stark change in Americans’ confidence in the U.S. economy from the negative views they expressed in most weeks over the past nine years.

And of course this booming level of confidence is not just reflected in Gallup’s numbers.  As I discussed in a previous article, the mammoth shift in the results of CNBC’s All-America Economic Survey after the election was nothing short of historic…

The CNBC All-America Economic Survey for the fourth quarter found that the percentage of Americans who believe the economy will get better in the next year jumped an unprecedented 17 points to 42 percent, compared with before the election. It’s the highest level since President Barack Obama was first elected in 2008.

The surge was powered by Republicans and independents reversing their outlooks. Republicans swung from deeply pessimistic, with just 15 percent saying the economy would improve in the next year, to strongly optimistic, with 74 percent believing in an economic upswing. Optimism among independents doubled but it fell by more than half for Democrats. Just 16 percent think the economy will improve.

On Tuesday, the Dow Jones Industrial Average closed at yet another all-time record high.

That was the 17th record close since election day, and overall the Dow is up a whopping 8 percent during that time span.

I don’t think that we have ever seen an extended post-election stock market rally quite like this one, and the U.S. dollar is rallying too.  On Tuesday, the U.S. dollar was the strongest that it has been in 14 years

The dollar hit a fresh 14-year high on Tuesday, boosted by upbeat comments from Federal Reserve Chair Janet Yellen that kept alive market expectations for swifter U.S. interest rate hikes next year than had been expected.

The greenback climbed broadly but its gains were strongest against the yen, which slid as much as 1 percent after the Bank of Japan kept monetary policy unchanged.

But of course not everything is rainbows and unicorns.  Signs of trouble continue to erupt all over the U.S. economy, and there are many that believe that Trump will be facing some very serious economic concerns very early in his presidency.

Just look at what is happening in the auto industry.  Unsold vehicles are piling up at an alarming pace at dealers all over the nation, and GM just announced that it is going to temporarily close five factories

GM has been reacting to its fabulously ballooning inventory glut by piling incentives on its vehicles. But that hasn’t worked all that well though it cost a lot of money. Now it’s time to get serious.

It will temporarily close five assembly plants in January and lay off over 10,000 employees, spokeswoman Dayna Hart said today.

And GM is definitely not alone.  Back in October, Ford made a similar announcement

In October, Ford announced that it would temporarily shut down production at one of its F-150 assembly plants (Kansas City), along with production at a plant that assembles the Escape and the Lincoln MKC (Louisville), plus two plants in Mexico. It would also lay off about 13,000 workers, 9,000 in the US and 4,000 in Mexico.

Another signal that the economy is slowing down is the tremendous difficulty that Uber is experiencing right now.  If you can believe it, they just announced that they lost a staggering 800 million dollars in the third quarter

Uber racked up pro-forma losses of more than $800m in the third quarter of this year as a price war with rival ride-hailing service Lyft in the US and heavy spending on new initiatives weighed on its figures, according to a person familiar with its recent financial performance, reports The Financial Times.

The third-quarter figures, first reported by tech news site The Information, show that Uber still faces steep losses even after pulling back from China.

I don’t understand how Uber could possibly lose 800 million dollars in three months.  Something is definitely very wrong over there.

Personally, I hope that things go as well as possible during the Trump administration.  If we truly are entering a new golden era of peace and prosperity, that would be more than okay with me.

But we should not forget that our economic fundamentals have continued to deteriorate all throughout the Obama years, and our nation has been steadily accumulating the largest mountain of debt the world has ever seen.

Unless there is some sort of unprecedented miracle, there is no way that this giant bubble that we are in at the moment is going to end well.  So it is definitely good to be optimistic, but we also need to be realistic about where we are right now and about the great challenges that we will soon be facing.

Tis The Season For Credit Card Debt: This Christmas Americans Will Spend An Average Of 422 Dollars Per Child

christmas-gifts-public-domainFor many Americans, the quality of Christmas is determined by the quality of the presents.  This is especially true for our children, and some of them literally spend months anticipating their haul on Christmas morning.  I know that when I was growing up Christmas was all about the presents.  Yes, adults would give lip service to the other elements of Christmas, but all of the other holiday activities could have faded away and it still would have been Christmas as long as presents were under that tree on the morning of December 25th.  Perhaps things are different in your family, but it is undeniable that for our society as a whole gifts are the central feature of the holiday season.

And that is why so many parents feel such immense pressure to spend a tremendous amount of money on gifts for their children each year.  Of course this pressure that they feel is constantly being reinforced by television ads and big Hollywood movies that continuously hammer home what a “good Christmas” should look like.

Once again in 2016, parents will spend far more money than they should because they want to make their children happy.  According to a brand new survey from T. Rowe Price, parents in the United States will spend an average of 422 dollars per child this holiday season…

More than half of parents report they aim to get everything on their kids’ wish lists this year, spending an average of $422 per child, according to a new survey from T. Rowe Price.

To me, that seems like a ridiculous amount of money to spend on a single child, but this is apparently what people are doing.

But can most families really afford to be spending so wildly?

Of course not.  As I have detailed previously, 69 percent of all Americans have less than $1,000 in savings.  That means that about two-thirds of the country is essentially living paycheck to paycheck.

So all of this reckless spending brings with it a lot of additional financial pressure.  But because we are a “buy now, pay later” society, we do it anyway.  We are willing to mortgage a little bit of the future in order to have a nice Christmas now.

Another new survey has found that close to half the country feels “pressure to spend more than they can afford during the holiday season”

The SunTrust Banks, Inc. (NYSE: STI) annual Holiday Financial Confidence survey reveals that 43 percent of Americans feel pressure to spend more than they can afford during the holiday season. Pressure to overspend is up four percent since the survey was first conducted in 2014 by Harris Poll, but down slightly from a high of 46 percent last year.

Ultimately, much of this spending ends up going on credit cards, and credit card debt is one of the most insidious forms of debt.

And the truth is that credit card debt was already surging nationally even before we got to the holiday season

But at least one indicator suggests that much of the US is actually struggling financially: Americans are piling on credit card debt at record levels that we haven’t seen since the financial crisis.

Households added $21.9 billion in credit card debt in the third quarter — the largest increase for that period since 2007 — bringing the amount of outstanding credit card debt to $927.1 billion, according to the latest study from WalletHub.

Debt takes future consumption and brings it into the present, but there is a price to be paid for doing that.

Because we have to pay interest on that debt, we always have to pay back more money than we originally borrowed.  And because interest rates on credit cards are so high, paying back credit card debt can be particularly painful.

According to Business Insider, the average American household currently owes nearly $8,000 to the credit card companies, and it is being suggested that this is a sign that the economy is much weaker than we have been led to believe…

The fact that the average household with debt now owes $7,941 to credit card companies, according to WalletHub, suggests that America’s putative economic strength might be a mirage — that the economy may in fact be a lot weaker than all the happy indicators are leading people to believe.

“I think it is a cause of concern because it says consumers are struggling despite the low unemployment figures,” says Lucia Dunn, an economics professor at Ohio State University. “I think the rise in debt arises from weakness in the economy. People whose incomes have dropped may be trying to maintain an older level of consumption by just charging everything.”

And guess what?

The Federal Reserve just raised interest rates, and so that means that paying off credit card debt will be even more painful for Americans in 2017 than it was in 2016.

Could it be possible that we have lost our way?

Could it be possible that we need to entirely rethink our approach to “the holiday season”?

According to an old NBC News story, one survey discovered that 45 percent of all Americans would prefer to skip Christmas altogether because of all the financial pressure…

Some 45 percent of those polled said the holiday season brings so much financial pressure, they would prefer to skip it altogether. Almost half said their level of stress related to holiday expenses is high or extremely high.

That’s probably because nearly the same amount — some 45 percent — say they do not expect to have enough money set aside to cover holiday expenses.

As a society, we need to learn that things will never make us happy.

Life is not about accumulating toys.  Rather, we were created to love and to be loved.

If you want to live a great life, learn how to be a person of great love.  Unfortunately, most people never seem to learn that lesson.

A couple of months ago, I reported that the total amount of household debt in the United States had reached a grand total of 12.3 trillion dollars.

If you break that number down, it comes to approximately $38,557 for every man, woman and child in the entire country.

In addition to that, we must also remember that corporate debt has approximately doubled while Barack Obama has been in the White House, state and local government debt is completely out of control, and the U.S. national debt is now sitting just under 20 trillion dollars.

Our greed is absolutely killing us, but we can’t stop.

So we will continue to party until eventually somebody comes along and turns out the lights.

After Raising Rates Once During The Obama Years, The Fed Promises Constant Rate Hikes During The Trump Era

janet-yellen-public-domainNow that Donald Trump has won the election, the Federal Reserve has decided now would be a great time to start raising interest rates and slowing down the economy.  Over the past several decades, the U.S. economy has always slowed down whenever interest rates have been raised significantly, and on Wednesday the Federal Open Market Committee unanimously voted to raise rates by a quarter point.  Stocks immediately started falling, and by the end of the session it was their worst day since October 11th.

The funny thing is that the Federal Reserve could have been raising rates all throughout 2016, but they held off because they didn’t want to hurt Hillary Clinton’s chances of winning the election.

And during Barack Obama’s eight years, there has only been one rate increase the entire time up until this point.

But now that Donald Trump is headed for the White House, the Federal Reserve has decided that now would be a wonderful time to raise interest rates.  In addition to the rate hike on Wednesday, the Fed also announced that it is anticipating that rates will be raised three more times each year through the end of 2019

Fed policymakers are also forecasting three rate increases in 2017, up from two in September, and maintained their projection of three hikes each in 2018 and 2019, according to median estimates. They predict the fed funds rate will be 1.4% at the end of 2017, 2.1% at the end of 2018 and 2.9% at the end of 2019, up from forecasts of 1.1%, 1.9% and 2.6%, respectively, in September. Its long-run rate is expected to be 3%, up slightly from 2.9% previously. The Fed reiterated rate increases will be “gradual.”

So Barack Obama got to enjoy the benefit of having interest rates slammed to the floor throughout his presidency, and now Donald Trump is going to have to fight against the economic drag that constant interest rate hikes will cause.

How is that fair?

As rates rise, ordinary Americans are going to find that mortgage payments are going to go up, car payments are going to go up and credit card bills are going to become much more painful.  The following comes from CNN

Higher interest rates affect millions of Americans, especially if you have a credit card or savings account, or want to buy a home or a car. American savers have earned next to nothing at the bank for years. Now they could be a step closer to earning a little more interest on savings account deposits, even though one rate hike won’t change things overnight.

Rates on car loans and mortgages are also likely to be affected. Those are much more closely tied to the interest on a 10-year U.S. Treasury bond, which has risen rapidly since the election. With a Fed hike coming at a time when interest on the 10-year note is also rising, that won’t help borrowers.

The higher interest rates go, the more painful it will be for the economy.

If you recall, rising rates helped precipitate the financial crisis of 2008.  When interest rates rose it slammed people with adjustable rate mortgages, and suddenly Americans could not afford to buy homes at the same pace they were before.  We have already been watching the early stages of another housing crash start to erupt all over the nation, and rising rates will certainly not help matters.

But why does the Federal Reserve set our interest rates anyway?

We are supposed to be a free market capitalist economy.  So why not let the free market set interest rates?

Many Americans are expecting an economic miracle out of Trump, but the truth is that the Federal Reserve has far more power over the economy than anyone else does.  Trump can try to reduce taxes and tinker with regulations, but the Fed could end up destroying his entire economic program by constantly raising interest rates.

Of course we don’t actually need economic central planners.  The greatest era for economic growth in all of U.S. history came when there was no central bank, and in my article entitled “Why Donald Trump Must Shut Down The Federal Reserve And Start Issuing Debt-Free Money” I explained that Donald Trump must completely overhaul how our system works if he wants any chance of making the U.S. economy great again.

One way that Trump can start exerting influence over the Fed is by nominating the right people to the Federal Open Market Committee.  According to CNN, it looks like Trump will have the opportunity to appoint four people to that committee within his first 18 months…

Two spots on the Fed’s committee are currently open for Trump to nominate. Looking ahead, Fed Chair Janet Yellen’s term ends in January 2018, while Vice Chair Stanley Fischer is up for re-nomination in June 2018.

Within the first 18 months of his presidency, Trump could reappoint four of the 12 people on the Fed’s powerful committee — an unusual amount of influence for any president.

By endlessly manipulating the economy, the Fed has played a major role in creating economic booms and busts.  Since the Fed was created in 1913, there have been 18 distinct recessions or depressions, and now the Fed is setting the stage for another one.

And anyone that tries to claim that the Fed is not political is only fooling themselves.  Everyone knew that they were not going to raise rates during the months leading up to the election, and it was quite clear that this was going to benefit Hillary Clinton.

But now that Donald Trump has won the election, the Fed all of a sudden has decided that the time is perfect to begin a program of consistently raising rates.

If I was Donald Trump, I would be looking to shut down the Federal Reserve as quickly as I could.  The essential functions that the Fed performs could be performed by the Treasury Department, and we would be much better off if the free market determined interest rates instead of some bureaucrats.

Unfortunately, most Americans have come to accept that it is “normal” to have a bunch of unelected, unaccountable central planners running our economic system, and so it is unlikely that we will see any major changes before our economy plunges into yet another Fed-created crisis.

Trumphoria: Americans Are More Optimistic About The Economy Than They Have Been Since Obama’s Win In 2008

donald-trump-accepts-the-nomination-public-domainOptimism about the future of the U.S. economy has not been this strong since Barack Obama’s first presidential election victory in 2008. Donald Trump promised us an economic resurgence, and what is not to like so far? As I discussed earlier this week, stocks are soaring, businesses are already announcing that they are bringing jobs back to the United States, and the U.S. dollar has been lifted to levels that we haven’t seen in many years. Many are referring to this post-election surge as “Trumphoria”, and I think that is quite appropriate. Personally, I couldn’t imagine financial markets behaving this way if Hillary Clinton had won the election. Right now tens of millions of Americans are feeling deeply optimistic about the future for the first time in a very long time, and this is clearly reflected in the results of the most recent CNBC All-America Economic Survey

The CNBC All-America Economic Survey for the fourth quarter found that the percentage of Americans who believe the economy will get better in the next year jumped an unprecedented 17 points to 42 percent, compared with before the election. It’s the highest level since President Barack Obama was first elected in 2008.

The surge was powered by Republicans and independents reversing their outlooks. Republicans swung from deeply pessimistic, with just 15 percent saying the economy would improve in the next year, to strongly optimistic, with 74 percent believing in an economic upswing. Optimism among independents doubled but it fell by more than half for Democrats. Just 16 percent think the economy will improve.

It is funny how our political perspectives so greatly shape our view of the future. Because Trump won, Democrats now have an extremely dismal opinion of where the economy is heading, while Republicans suddenly believe that happy days are here again.

Of course the truth is that the president has far less power to influence the economy than the Federal Reserve does, and so most Americans greatly overestimate what a president can do to alter our economic trajectory.

But for now most Americans (excluding Democrats) are feeling really good about where things are headed. In fact, we just learned that the University of Michigan consumer confidence survey has soared to the highest level that we have seen since 2005.

And of course the financial markets continued to roll onward and upward on Friday. The Dow was up another 142 points, and it is now less than 250 points away from the magic number of 20,000.

I never thought that we would actually get to 20,000, but thanks to “Trumphoria” we may actually get there before the wheels start coming off.

This post-election run has really been unprecedented. The following comes from CNBC

All major indexes have been hitting record highs since the election. In fact, the Dow has notched 14 record closes since then and gains in 20 of the past 24 sessions.

The Dow, S&P 500, and Nasdaq also did something they haven’t done in more than five years: all three rose each day of this trading week. The last time all three rose every day during the same trading week was September 2011.

Wouldn’t it be great if every month during Trump’s presidency was like the last 30 days?

Trump promised that we would start winning so much that we would actually start getting tired of winning, and so far we are off to a tremendous start.

As I discussed yesterday, some of the biggest winners from “Trumphoria” have been the big banks

The shares of Wells Fargo, the most hated bank in America these days, soared 28% over the past 30 days, Citigroup 25%, JP Morgan 26%, Goldman Sachs, which is successfully placing its people inside the Trump administration, 37%.

But is this momentum in the financial markets sustainable?

Of course not.

There are signs of emerging economic trouble all around us. For instance, Sears just announced that it lost 748 million dollars last quarter and that it plans to liquidate even more stores.

How in the world do you lose three-quarters of a billion dollars in a single quarter? If you had employees in every store literally flushing dollar bills down the toilet all day I don’t think you could lose money that quickly.

And the moment that Trump takes office, he may immediately be faced with a major financial crisis in Europe which has been sparked by the meltdown of large Italian banks. The following comes from a Forbes article entitled “Italy’s Banking Crisis Is Nearly Upon Us“…

There is a high degree of probability (approaching 90%, I’d say) that Italy will experience a severe banking crisis in the next few quarters. Perhaps they can stave off the problem for a year, but something will have to be done about the banks.

Unfortunately, it looks like things are about to get very real for Italian banking giant Monte dei Paschi di Siena. According to Reuters, the European Central Bank has turned down their request for more time to raise needed capital…

The European Central Bank has rejected a request by Italy’s Monte dei Paschi di Siena (BMPS.MI) for more time to raise capital, a source said on Friday, a decision that piles pressure on the Rome government to bail out the lender.

Italy’s third-largest bank, and the world’s oldest, had asked for a three-week extension until January 20 to try to wrap up a privately funded, 5 billion euro ($5.3 billion) rescue plan in the face of fresh political uncertainty.

The ECB’s supervisory board turned down the request at a meeting on Friday on the grounds that a delay would be of little use and that it was time for Rome to step in, the source said.

But most Americans have no idea what is unfolding in Europe right now.

As Americans, we tend to be largely oblivious to what is going on in the rest of the world, and at this moment “Trumphoria” has gripped our nation.

It is certainly not wrong to celebrate the fact that we are getting Donald Trump instead of Hillary Clinton, but let us also not lose sight of the fact that we are likely to be facing some tremendous challenges very early in 2017.

We Are Being Set Up For Higher Interest Rates, A Major Recession And A Giant Stock Market Crash

bear-market-bull-market-public-domainSince Donald Trump’s victory on election night we have seen the worst bond crash in 15 years.  Global bond investors have seen trillions of dollars of wealth wiped out since November 8th, and analysts are warning of another tough week ahead.  The general consensus in the investing community is that a Trump administration will mean much higher inflation, and as a result investors are already starting to demand higher interest rates.  Unfortunately for all of us, history has shown that higher interest rates always cause an economic slowdown.  And this makes perfect sense, because economic activity naturally slows down when it becomes more expensive to borrow money.  The Obama administration had already set up the next president for a major recession anyway, but now this bond crash threatens to bring it on sooner rather than later.

For those that are not familiar with the bond market, when yields go up bond prices go down.  And when bond prices go down, that is bad news for economic growth.

So we generally don’t want yields to go up.

Unfortunately, yields have been absolutely soaring over the past couple of weeks, and the yield on 10 year Treasury notes has now jumped “one full percentage point since July”

The 10-year Treasury yield jumped to 2.36% in late trading on Friday, the highest since December 2015, up 66 basis point since the election, and up one full percentage point since July!

The 10-year yield is at a critical juncture. In terms of reality, the first thing that might happen is a rate increase by the Fed in December, after a year of flip-flopping. A slew of post-election pronouncements by Fed heads – including Yellen’s “relatively soon” – have pushed the odds of a rate hike to 98%.

As I noted the other day, so many things in our financial system are tied to yields on U.S. Treasury notes.  Just look at what is happening to mortgages.  As Wolf Richter has noted, the average rate on 30 year mortgages is shooting into the stratosphere…

The carnage in bonds has consequences. The average interest rate of the a conforming 30-year fixed mortgage as of Friday was quoted at 4.125% for top credit scores. That’s up about 0.5 percentage point from just before the election, according to Mortgage News Daily. It put the month “on a short list of 4 worst months in more than a decade.”

If mortgage rates continue to shoot higher, there will be another housing crash.

Rates on auto loans, credit cards and student loans will also be affected.  Throughout our economic system it will become much more costly to borrow money, and that will inevitably slow the overall economy down.

Why bond investors are so on edge these days is because of statements such as this one from Steve Bannon

In a nascent administration that seems, at best, random in its beliefs, Bannon can seem to be not just a focused voice, but almost a messianic one:

“Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement,” he says. “It’s everything related to jobs. The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Ship yards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution — conservatives, plus populists, in an economic nationalist movement.”

Steve Bannon is going to be one of the most influential voices in the new Trump administration, and he is absolutely determined to get this “trillion dollar infrastructure plan” through Congress.

And that is going to mean a lot more borrowing and a lot more spending for a government that is already on pace to add 2.4 trillion dollars to the national debt this fiscal year.

Sadly, all of this comes at a time when the U.S. economy is already starting to show significant signs of slowing down.  It is being projected that we will see a sixth straight decline in year-over-year earnings for the S&P 500, and industrial production has now contracted for 14 months in a row.

The truth is that the economy has been barely treading water for quite some time now, and it isn’t going to take much to push us over the edge.  The following comes from Lance Roberts

With an economy running at below 2%, consumers already heavily indebted, wage growth weak for the bulk of American’s, there is not a lot of wiggle room for policy mistakes.

Combine weak economics with higher interest rates, which negatively impacts consumption, and a stronger dollar, which weighs on exports, and you have a real potential of a recession occurring sooner rather than later.

Yes, the stock market soared immediately following Trump’s election, but it wasn’t because economic conditions actually improved.

If you look at history, a stock market crash almost always follows a major bond crash.  So if bond prices keep declining rapidly that is going to be a very ominous sign for stock traders.

And history has also shown us that no bull market can survive a major recession.  If the economy suffers a major downturn early in the Trump administration, it is inevitable that stock prices will follow.

The waning days of the Obama administration have set us up perfectly for higher interest rates, a major recession and a giant stock market crash.

Of course any problems that occur after January 20th, 2017 will be blamed on Trump, but the truth is that Obama will be far more responsible for what happens than Trump will be.

Right now so many people have been lulled into a sense of complacency because Donald Trump won the election.

That is an enormous mistake.

A shaking has already begun in the financial world, and this shaking could easily become an avalanche.

Now is not a time to party.  Rather, it is time to batten down the hatches and to prepare for very rough seas ahead.

All of the things that so many experts warned were coming may have been delayed slightly, but without a doubt they are still on the way.

So get prepared while you still can, because time is running out.

11 Very Depressing Economic Realities That Donald Trump Will Inherit From Barack Obama

donald-trump-and-barack-obama-talking-in-the-oval-office-public-domainIt would be a grave mistake to understate the amount of damage that has been done to the U.S. economy over the past eight years.  In this article, I am going to share some economic numbers with you that are extremely sobering.  Anyone that takes a cold, hard, honest look at the numbers should be able to see that our economy is in terrible shape.  Unfortunately, the way that we see things is often clouded by our political views.  Up until the election, Democrats were far more likely then Republicans to believe that the economy was improving, but now that is in the process of completely reversing.  According to Gallup, only 16 percent of Republicans believed that the economy was getting better before the election, but that number has suddenly jumped to 49 percent after Trump’s election victory.  And the percentage of Democrats that believe that the economy is getting better fell from 61 percent to 46 percent after the election.  Here are some additional details from Gallup

After Trump won last week’s election, Republicans and Republican-leaning independents now have a much more optimistic view of the U.S. economy’s outlook than they did before the election. Just 16% of Republicans said the economy was getting better in the week before the election, while 81% said it was getting worse. Since the election, 49% say it is getting better and 44% worse.

Conversely, Democrats and Democratic-leaning independents’ confidence in the economy plummeted after the election. Before the election, 61% of Democrats said the economy was getting better and 35% worse. Now, Democrats are evenly divided, with 46% saying it is getting better and 47% saying it is getting worse.

The truth, of course, is that the result of the election did not somehow magically alter the outlook for the U.S. economy.

We still have a giant mess on our hands, and the following are 11 very depressing economic realities that Donald Trump will inherit from Barack Obama…

#1 Nearly 7 out of every 10 Americans have less than $1,000 in savings.  That means that about two-thirds of the country is essentially living paycheck to paycheck at this moment.

#2 Reuters is reporting that U.S. mall investors are poised to lose “billions” of dollars as the “retail apocalypse” in this nation deepens.

#3 Credit card delinquencies have hit the highest level that we have seen since 2012.

#4 Approximately 35 percent of all Americans have a debt that is at least 180 days past due.

#5 The rate of homeownership has fallen for eight years in a row and is now hovering near a 50 year low.

#6 The total number of government employees now outnumbers the total number of manufacturing employees in this country by almost 10 million.

#7 The number of homeless people in New York City (where Donald Trump is from) has hit a brand new record high.

#8 About 20 percent of all young adults are currently living with their parents.

#9 Total household debt in the United States has now reached a grand total of 12.3 trillion dollars.

#10 The total amount of corporate debt in the U.S. has nearly doubled since the end of 2007.

#11 When Barack Obama entered the White House, the U.S. government was 10.6 trillion dollars in debt.  Today, the U.S. national debt is currently sitting at a staggering total of $19,842,173,949,869.58.

Despite nearly doubling the national debt during his eight years in the White House, Barack Obama is going to be the only president in United States history to never have a single year when U.S. GDP grew by at least three percent.

So will Donald Trump waltz in and suddenly turn everything around?

Just like when George W. Bush was elected, there is a lot of optimism about the future right now among Republicans.

And in 2017, Republicans are going to have control of the Senate and the House in addition to being in control of the White House.

But does that mean that they will actually get anything done?

For a moment, let’s review what didn’t happen the last time the Republicans were in this position.  The following is an extended excerpt from an article by author Devvy Kidd

—–

The Republicans had control of both houses of Congress part of the time during Bush, Jr.’s two terms. Did they lock down our borders? NO.

Did they pass legislation to stop ALL funding for illegals which would self-deport millions of liars, cheats and thieves? NO. (READ, please: How to Self-Deport Millions of Illegals)

Did they stop trillions in unconstitutional spending? NO.

Did they get rid of any of Clinton’s unconstitutional Executive Orders? One or two but otherwise let Comrade Bill Clinton crap in our faces.

Did they get rid of one unconstitutional cabinet like HHS, Department of Education and EPA? NO.

Did they stop the unconstitutional foreign aid? NO.

Did they stop unconstitutional spending for Planned Parenthood? NO. Congress just continues to use borrowed money to spend more debt.

Did they stop unconstitutional spending for the gigantic hoax called global warming or climate change? NO. Trump: The Left Just Lost The War On Climate Change

Did Bush, Jr., get us out of all the destructive trade treaties killing American jobs? NO.

Did they crack down on visas bringing in tens of thousands of foreign workers when American workers who want to work are left in the unemployment line? NO.

Did they stop more and more federal regulations strangling America’s businesses? NO.

Did they impeach one single activist judge destroying our freedom and liberty? NO.

A Republican controlled Congress with a Republican in the White House and they did virtually NOTHING to restore America to a constitutional republic and constitutional spending.

—–

So will things be any different under a Trump administration?

We shall see.

There will be tremendous pressure to maintain the status quo in many instances, because the process of fixing things would undoubtedly make conditions worse in the short-term.

A great example of this is the national debt.  As I discussed yesterday, the only reason why we are able to enjoy such a massively inflated standard of living in this country is because we have been able to borrow trillions upon trillions of dollars from the rest of the world at ultra-low interest rates.

If the federal government started spending only the money that it brought in through taxes, our ridiculous debt-fueled standard of living would begin collapsing immediately.

We consume far more wealth than we produce, and the only way that we are able to do this is by borrowing insane amounts of money.

Either Donald Trump will continue to borrow money recklessly, or we will go into a major league economic downturn.

It really is that simple.

But when our politicians borrow money, they are literally destroying the future of this country.  So the choice is pain in the short-term or greater pain in the long-term.

There is a way out, and that would involve shutting down the Federal Reserve and going to a completely debt-free form of money, but that is a topic for another article.

And unfortunately that is not something that is even on Donald Trump’s radar at this point.

No matter who won the election, the next president was going to be faced with some very harsh economic realities.

There are many out there that have faith that Donald Trump can pull off an unprecedented economic miracle, but there are others that are deeply skeptical.

Let us hope for the best, but let us also keep preparing for the worst.

The Election Of Donald Trump Is Already Having An Enormous Impact On The Economy

donald-trump-and-barack-obama-in-the-oval-office-public-domainThe election of Donald Trump has sent shockwaves through the U.S. economy and the U.S. financial system.  Since November 8th, the Dow has hit a brand new all-time record high, the U.S. dollar has strengthened greatly, and bank stocks are way up.  But not all of the economic news is good news.  Unlike stocks, bonds have reacted very negatively to Trump’s election victory.  The past week has been an absolute bloodbath for bond traders, and as you will see below this is going to have dramatic implications for all U.S. consumers moving forward.

Over just a two day period, more than a trillion dollars was wiped out as bond yields spiked all over the globe.  As CNN has noted, this type of “violent reaction” in the bond market has only happened three other times within the past ten years…

The rate on 10-year Treasury notes has surged to 2.3%, from 1.77% before the election. Last week’s spike in Treasury rates was so big, that it had only happened three times before in the last decade.

BlackRock’s Russ Koesterich called it a “violent reaction.”

The move stands to have broad repercussions for all Americans. Not only will the U.S. government have to pay more to borrow money, but mortgage rates and car loan costs should also rise. That’s because Treasuries are used as the benchmark for many other forms of credit.

As interest rates rise, virtually everyone in our society is going to feel the pain.

Those that need an auto loan in order to purchase a vehicle are going to find that loan payments are significantly higher than they were before.

Credit card rates will also go up, and those just getting out of school will discover that their student loan payments are even more suffocating.

But the biggest impact will be felt in the housing market.  The average rate on a 30-year fixed mortgage just hit the psychologically-important 4 percent barrier, and that could mean big trouble for the housing market in 2017

The average contract rate on the popular 30-year fixed mortgage hit 4 percent, according to Mortgage News Daily, a level most didn’t expect to see until the middle of next year. Rates have now moved nearly a half a percentage point higher since Donald Trump was elected president.

“The situation on the ground is panicked. Damage control,” said Matthew Graham, chief operating officer of Mortgage News Daily. “People were trying to lock loans quickly last week and are now facing a tough choice to lock today or hope for a bounce. Many hoped for a bounce last week heading into the long weekend and we obviously didn’t get it.”

Rising interest rates was one of the key factors that precipitated the financial crisis of 2008, and many fear that it could happen again.

And without a doubt, this rise in rates is going to affect the affordability of homes that are already on the market

“If you’re going to buy a house and your mortgage payment went up by $200 or $300, you may buy a smaller house. There’s impact on interest rate sensitive sectors, like autos and housing, and also corporate bonds themselves, where financial engineering has helped juice up the equity market,” said George Goncalves, head of rate strategy at Nomura.

In addition, rising rates will make it more difficult for those with adjustable rate mortgages to keep their homes.  Foreclosure activity was already up 27 percent during the month of October, and many are projecting that we could see another giant spike in foreclosures during the months ahead that is similar to what we saw during the last financial crisis.

Many Trump supporters don’t really care what the rest of the world thinks of our new president, but this is an area where what the rest of the world thinks really, really matters.

The truth is that the rest of the planet is not all too fond of Trump, and if that makes them a lot less eager to lend us money that is a major problem.

The only way that we can maintain our massively inflated debt-fueled standard of living is to continue to borrow gigantic mountains of money from the rest of the world at ultra-low interest rates.

If the rest of the world starts demanding higher rates of return now that Trump is president, we are going to experience economic pain on a scale that most Americans don’t believe is possible.

One of our big lenders has been China, and right now they are deeply concerned about what a Trump presidency might mean.  Trump has talked very tough about trade with China, and the Chinese are gearing up for a major trade war.  The following comes from CNBC

During his election campaign this year, Trump spoke of a 45 percent import tariff on all Chinese goods while failing to outline how it would work. Should any such policy come into effect, China will take a “tit-for-tat approach”, according to an opinion piece in the Global Times, a newspaper backed by the Communist party.

“A batch of Boeing orders will be replaced by Airbus. U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted. China can also limit the number of Chinese students studying in the U.S.,” the Global Times article read.

Most Trump supporters assume that since Trump has been a very successful businessman that he will be able to strengthen the U.S. economy.

But it isn’t that simple.

The only reason we are able to live the way that we live today is because we have been able to borrow trillions upon trillions of dollars at irrationally low interest rates.

The moment the rest of the world decides that they are not going to loan us money at irrationally low interest rates any longer the game is over, and it won’t really matter who is in the White House at that point.

So watch interest rates very carefully.  If they keep going up, it is inevitable that a major economic slowdown will follow no matter what economic policies the new Trump administration implements.

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