Optimism 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.
It 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 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.
Happy days are here again? On Friday, the mainstream media was buzzing with the news that the U.S. economy had added 255,000 jobs during the month of July. But as you will see below, the U.S. economy did not add 255,000 jobs during the month of July. In fact, without an extremely generous “seasonal adjustment”, the number of jobs added during the month of July would not have even kept up with population growth. But the pretend number sounds so much better than the real number, and so the pretend number is what is being promoted for public consumption.
Why doesn’t the government ever just tell us the plain facts? Unfortunately, we live at a time when “spin” is everything, and just about everyone in the mainstream media seemed quite pleased with the “good jobs report” on Friday. However, as Zero Hedge has pointed out, the truth is that the “unadjusted” numbers tell a very different story…
As Mitsubishi UFJ strategist John Herrmann wrote in a note shortly after the report, the “jobs headline overstates” strength of payrolls. He adds that the unadjusted data show a “middling report” that’s “nowhere as strong as the headline” and adds that private payrolls unadjusted +85k in July vs seasonally adjusted +217k.
In Herrmann’s view, the government applied a “very benign seasonal adjustment factor upon private payrolls to transform a soft private payroll gain into a strong gain.”
He did not provide a reason why the government would do that.
Every month, the U.S. economy must create at least 150,000 new jobs just to keep up with population growth. According to the unadjusted numbers, we did not hit that threshold, and so the employment situation in this country actually got worse last month.
In America today, there are 7.8 million Americans that are considered to be officially unemployed, and another 94.3 million working age Americans that are considered to be “not in the labor force”.
When you add those two numbers together, you get a grand total of 102 million working age Americans that do not have a job right now.
Rather than focusing on the headline “unemployment” figure, we get a much fairer look at the employment crisis in the United States when we examine the employment-population ratio. The following chart comes directly from the Bureau of Labor Statistics, and it shows that the percentage of Americans that are employed has never even come close to getting back to where it was just prior to the last recession…
Over the past couple of years we have seen a slight bump in this number, and that is good, but normally after a recession ends the employment-population ratio goes back to at least as high as it was before. Unfortunately, this has not happened after the last two recessions. The following comes from Wolf Richter…
The ratio always drops during recessions, but before 2001, it always climbed to higher highs during the recoveries. The 2001 recession and subsequent recovery changed this. For the first time, the ratio never fully recovered, never got even close to fully recovering. That was a new phenomenon: employment growth could no longer keep up with population growth.
When the Great Recession hit, the ratio plunged from its lower starting point at the fastest pace on record (going back to 1948). The Fed’s efforts were all focused exclusively on bailing out bondholders, re-inflating the stock market, re-inflating the housing market, and generally creating what had become the official Fed policy at the time, the Wealth Effect (here’s Bernanke himself explaining it). This has re-inflated asset prices – many of them way beyond their prior bubble peaks.
But the Fed’s astounding focus on capital accelerated the already changing dynamics of the economy, at the expense of labor.
Even the Wall Street Journal admits that we are in the weakest “economic recovery” since 1949, and now there are lots of signs that we have entered a brand new economic downturn. Here are just a few examples from Chad Shoop…
- Ford, GM and Chrysler — three of the U.S.’ largest auto companies — reported sales for July that missed estimates: down 3%, 1.9% and up 0.3%, respectively.
- Delta Airlines, one of the largest airlines in the world, said revenue fell 7% in July as part of its monthly performance update.
- Macy’s, the biggest department store company, reported a decline in sales for July, leading to more aggressive markdowns and an industry-wide sell-off.
And lots of ominous signs continue to pop up on Wall Street as well. For one thing, the Libor rate has surged to the highest level since the last financial crisis. If you are not familiar with Libor, here is a pretty good explanation of it from Business Insider…
The Libor, or London Interbank Offered Rate, measures the interest rate at which banks lend to each other at different durations, and its sharp jump was a harbinger of the financial crisis.
And according to that same article, the Libor rate is now the highest that we have seen since early 2009…
In the past month, the Libor rate has spiked to rates not seen since the first quarter of 2009, the heart of the banking meltdown.
Not to mention, the spread between the Libor and the Overnight Index Swap rate, which tracks the lending rate from the Federal Reserve, has widened, another potentially worrying sign.
But of course I have been quoting facts and figures like this for months, and yet U.S. financial markets continue to hold it together.
There are literally dozens of parallels between the global financial crisis of 2008 and what is happening in 2016, but Wall Street continues to defy the laws of economics.
Of course it won’t last forever, but it certainly has been a sight to behold.
And I am certainly not alone in my analysis. As I noted the other day, DoubleLine Capital CEO Jeffrey Gundlach is entirely convinced that stocks “should be down massively”…
“The artist Christopher Wool has a word painting, ‘Sell the house, sell the car, sell the kids.’ That’s exactly how I feel – sell everything. Nothing here looks good,” Gundlach said in a telephone interview. “The stock markets should be down massively but investors seem to have been hypnotized that nothing can go wrong.”
For the moment, investors continue to pay extremely irrational prices for stocks, and the mainstream media is just giddy about the state of the economy.
So let us enjoy this very strange period of stability for however much longer it lasts, but let us also protect ourselves from the horrible crash that will inevitably follow.
If you were hungry enough, would you kill and eat zoo animals? To most of us such a notion sounds absolutely insane, but this is actually happening in Venezuela right now. This is a country where people are standing in lines for up to 12 hours hoping that there will be food to buy that day, and where rioting and looting have become commonplace. So even though the U.S. economy is in dreadful shape at this moment, we should be thankful for what we have, because at least we are not experiencing a full-blown economic collapse yet like Venezuela currently is.
Black stallions can be some of the most beautiful horses on the entire planet, but things are so desperate down in Venezuela this summer that everything looks like food to some people at this point. What happened at the Caricuao Zoo on Sunday is so horrible that I actually debated whether or not to share it with you. Desperate people do desperate things, and when people get hungry enough they will do things such as this…
Venezuela’s worsening food shortages had tragic consequences for a rare show horse last weekend, when a group of intruders broke into the zoo, pulled the black stallion from its cage, then slaughtered it for meat.
Prosecutors say the crime occurred in the small hours of Sunday morning at Caracas’ Caricuao Zoo, when “several people” sneaked into the state-run park under the cover of darkness and busted into the stallion’s pen. The horse, the only one of its kind in the zoo, was then led to a more secluded area and butchered on the spot. Only its head and ribs were left behind in a gruesome pile for zookeepers to find after sunrise.
Unfortunately, this precious animal was not even the first victim at that particular zoo.
A few weeks ago, pigs and sheep were the targets…
Sadly, this horse wasn’t the first zoo animal to suffer the effects of Venezuela’s crippling food shortages. Some Vietnamese pigs and sheep were reportedly stolen from the same zoo earlier this month.
Dozens of other zoo animals are slowing starving to death because there is no food available to give to them. In fact, it is being reported that at least 50 animals have died from lack of food at one zoo alone…
At least 50 animals have died in the last six months at the Caricuao zoo in Caracas, Venezuela, due to widespread food shortages that are affecting both man and beast in the socialist nation.
Marlene Sifontes, a union leader for employees of state parks agency Inparques which oversees zoos, told Reuters that the zoo lost Vietnamese pigs, tapirs, rabbits and birds after the animals went weeks without eating. Others animals at the zoo are in danger of severe malnutrition. Lions and tigers, which should be on a carnivorous diet, are being fed mango and pumpkin just to get something in their empty stomachs, while an elephant is being fed tropical fruit instead of its usual diet of hay, the union leader said. According to one report, the big cats are being fed slaughtered thoroughbred racehorses from a nearby race track.
If what you have just read hurts your heart, let us not forget that it is not just the animals that are suffering. There are millions of precious people down there that are living on the very edge of starvation as you read this article.
Earlier this year, one mayor came forward and admitted to the world that some people are so hungry that they are actually hunting “cats, dogs and pigeons” for food…
Ramón Muchacho, Mayor of Chacao in Caracas, said the streets of the capital of Venezuela are filled with people killing animals for food.
Through Twitter, Muchacho reported that in Venezuela, it is a “painful reality” that people “hunt cats, dogs and pigeons” to ease their hunger. People are also reportedly gathering vegetables from the ground and trash to eat as well.
The crisis in Venezuela is worsening everyday due in part to shortages reaching 70 percent […] six Venezuelan military officials were arrested for stealing goats to ease their hunger, as there was no food at the Fort Manaure military base.
With each passing week, the situation in Venezuela keeps on getting worse.
And even though the United States has made many of the exact same mistakes that Venezuela has made, most of us just assume that what is happening down there could never happen up here.
After all, we have “the greatest economy in the world” and we are “the wealthiest nation on the entire planet”, right?
Well, actually our economic infrastructure has been systematically gutted by free trade deals and we consume far more wealth than we produce. We have artificially pumped up our standard of living by adding more than 1.1 trillion dollars a year to the national debt since Barack Obama has been in the White House, and one recent poll discovered that 62 percent of all Americans have less than $1,000 saved up.
But don’t worry. Instead of turning out like Venezuela, the mainstream media insists that the best days for America are right around the corner.
In fact, just today I came across a Business Insider article that insisted that soon our biggest economic problem will be that we won’t be able to find enough workers.
And Barbra Streisand is so thrilled that Hillary Clinton is going to be our next president that she launched into a rousing rendition of “Happy Days Are Here Again” as she kicked off her farewell tour in Los Angeles. The following account comes from the Drudge Report…
So long sad times
Go along bad times
We are rid of you at last
Howdy gay times
Cloudy gray times
You are now a thing of the past
Happy days are here again
The skies above are clear again
So let’s sing a song of cheer again…
Streisand suddenly interrupted the lyric, realizing a Democrat was currently in the White House!
“By the way, I love Obama.”
Altogether shout it now
There’s no one
Who can doubt it now
So let’s tell the world about it now
Happy days are here again
So what is the truth?
Are we going to end up just like Venezuela, or are happy days here once more?
Unfortunately, I have a feeling that we are not going to have to wait too long to find out…
Most of us have never witnessed an economic “recovery” this bad. As you will see below, the average rate of economic growth since the last recession has been the lowest for any “recovery” in at least 67 years. And unfortunately, the economy appears to be slowing down even more here in 2016. On Friday, I talked about how the U.S. economy grew at a painfully slow rate of just 1.2 percent in the second quarter after only growing 0.8 percent during the first quarter. And last week we also learned that the homeownership rate in the United States has dropped to the lowest level ever. This is not what a recovery looks like. Instead, it very much appears that a new economic downturn has already begun.
But don’t just take my word for how painful this economic “recovery” has been. The following comes from a Wall Street Journal article that was just posted entitled “Seven Years Later, Recovery Remains the Weakest of the Post-World War II Era“…
Even seven years after the recession ended, the current stretch of economic gains has yielded less growth than much shorter business cycles.
In terms of average annual growth, the pace of this expansion has been by far the weakest of any since 1949. (And for which we have quarterly data.) The economy has grown at a 2.1% annual rate since the U.S. recovery began in mid-2009, according to gross-domestic-product data the Commerce Department released Friday.
The prior expansion, from 2001 through 2007, was the only other business cycle of the past 11 when the economy didn’t grow at least 3% a year, on average.
This entire seven year stretch has come while Barack Obama has been in the White House. After more than seven and a half years, he is solidly on track to be the only president in U.S. history to never have a single year when the U.S. economy grew by at least three percent.
And unlike many presidents, he has had two terms in which to try to accomplish that feat.
One of the industries that had been doing fairly well during this recovery was the auto industry, but now in early 2016 they have found themselves struggling too…
Now, the auto sector, which has propped up GDP growth for years, is slowing down. For the first six months, total car and light truck sales, at a seasonally adjusted annual rate (SAAR) of 17.5 million vehicles, are lagging behind last year by 100,000 units. Over the first half, fleet sales to rent-a-car companies and big fleet buyers were up industry wide. But retail sales fell 2%.
All over the corporate world, earnings are down.
In some cases, they are way down.
It is being projected that this will be the fifth quarter in a row when corporate earnings have declined, and even mainstream analysts are now admitting that it is “evident” that we have entered “a global slowdown”…
“Earnings season in the U.S. confirms the overall macro picture that we have. We have a global slowdown. It’s evident in all of the major economies,” said Peter Garnry, head of equity strategy at Saxo Bank, on a Bloomberg podcast.
Of course I have been saying this exact thing for the past 12 months, but a lot of people have tuned me out because the stock market in the United States has been doing so well.
But the stock market is not an accurate barometer for the real economy. It never has been, and it never will be.
If stocks accurately reflected the health of the U.S. economy, they would have already crashed really hard a long time ago. At this moment, stock prices are completely disconnected from economic reality, and this has many of the most respected names on Wall Street scratching their heads. One of them is Jeffrey Gundlach, the chief executive of DoubleLine Capital. Just check out what he told Reuters on Friday…
Noting the recent run-up in the benchmark Standard & Poor’s 500 index while economic growth remains weak and corporate earnings are stagnant, Gundlach said stock investors have entered a “world of uber complacency.”
The S&P 500 on Friday touched an all-time high of 2,177.09, while the government reported that U.S. gross domestic product in the second quarter grew at a meager 1.2 percent rate.
“The artist Christopher Wool has a word painting, ‘Sell the house, sell the car, sell the kids.’ That’s exactly how I feel – sell everything. Nothing here looks good,” Gundlach said in a telephone interview. “The stock markets should be down massively but investors seem to have been hypnotized that nothing can go wrong.”
If you follow Gundlach, you probably already know that he has been dead on accurate with regard to the financial markets over the past couple of years.
So when he says that the stock market “should be down massively” and that it is time to “sell everything”, we should all take him very, very seriously.
All throughout history, a huge decline in corporate earnings has almost always resulted in a huge decline in stock prices. As Jesse Felder has noted, “we have never seen a decline in earnings of this magnitude without at least a 20% fall in stock prices” during the last 50 years.
To any rational observer, it is quite obvious that stock prices should have already started collapsing quite some time ago.
And to a large extent this has already happened around the planet, but here in the United States stocks continue to defy the laws of economics.
But at this point it isn’t going to do much good to warn people about this. Those that could see the danger coming have already pulled their money out of stocks, and most of those that want to stick their heads in the sand and pretend that things are somehow going to be different this time are not likely to be persuaded this late in the game.
In the end, we should all be grateful that this absurd financial bubble has lasted for as long as it has, because stability is much more pleasant than instability. The U.S. economy and the U.S. financial system have enjoyed a prolonged period of stability that has defied all the odds, and let us hope that it lasts for at least a little while longer…
We just got another extremely disappointing GDP number. It was being projected that U.S. GDP would grow by 2.5 percent during the second quarter of 2016, but instead it only grew by just 1.2 percent. In addition, the Census Bureau announced that GDP growth for the first quarter of 2016 had been revised down from 1.1 percent to 0.8 percent. What this means is that the U.S. economy is just barely hanging on by its fingernails from falling into a recession. As Zero Hedge has pointed out, the “average annual growth rate during the current business cycle remains the weakest of any expansion since at least 1949″. This is not what a recovery looks like.
In addition, Barack Obama remains solidly on track to be the only president in all of U.S. history to never have a single year when the economy grew by at least 3 percent. Every other president in American history, even the really bad ones, had at least one year when U.S. GDP grew by at least 3 percent. But this has not happened under Obama even though he has had two terms in the White House.
The following are the yearly GDP growth numbers under Obama. They come directly from the official website of the World Bank…
2009: -2.8 percent
2010: 2.5 percent
2011: 1.6 percent
2012: 2.2 percent
2013: 1.5 percent
2014: 2.4 percent
2015: 2.4 percent
Does that look like a “recovery” to you?
Of course not.
And many are anticipating that this latest extremely disappointing GDP number will discourage the Federal Reserve from raising interest rates any time in the near future…
The disappointing report could keep the Federal Reserve on hold longer as it considers another interest rate hike. The Fed lifted its key rate in December for the first time in nine years but has held it steady since.
According to the pundits in the mainstream media, this was supposed to be the year when the U.S. economy finally returned to “normal”, but that has not happened at all. In fact, in recent days we have gotten a spate of bad news about the economy. We just learned that the homeownership rate in the United States has hit the lowest level ever, and Gallup’s U.S. economic confidence index has fallen to the lowest level so far this year.
With the election coming up rapidly, this is the kind of news that Hillary Clinton definitely does not need. She needs to be able to sell the American people on the idea that the Obama years have been very good for the U.S. economy. If things take a sharp turn down in the coming months, that may be enough to cost her the election.
So far, Hillary Clinton’s economic agenda has not received that much scrutiny, but the truth is that she hopes to increase taxes in a whole bunch of ways which would be very harmful for the economy. The following comes from an excellent piece by John Kartch and Alexander Hendrie…
Hillary has endorsed several tax increases on middle income Americans, despite her pledge not to raise taxes on any American making less than $250,000. She has said she would be fine with a payroll tax hike on all Americans, she has endorsed a steep soda tax, endorsed a 25% national gun tax, and most recently, her campaign manager John Podesta said she would be open to a carbon tax. It’s no wonder that when asked by ABC’s George Stephanopoulos if her pledge was a “rock-solid” promise, she slipped and said the pledge was merely a “goal.” In other words, she’s going to raise taxes on middle income Americans.
Hillary’s formally proposed $1 trillion net tax increase consists of the following:
Income Tax Increase – $350 Billion: Clinton has proposed a $350 billion income tax hike in the form of a 28 percent cap on itemized deductions.
Business Tax Increase — $275 Billion: Clinton has called for a tax hike of at least $275 billion through undefined business tax reform, as described in a Clinton campaign document.
“Fairness” Tax Increase — $400 Billion: According to her published plan, Clinton has called for a tax increase of “between $400 and $500 billion” by “restoring basic fairness to our tax code.” These proposals include a “fair share surcharge,” the taxing of carried interest capital gains as ordinary income, and a hike in the Death Tax.
Taxes tend to be a pet peeve of mine, so looking at that list of proposed taxes definitely makes me cringe.
If Donald Trump wants to hit the Democrats really hard on the economy, all he has to do is point out the fact that Barack Obama is going to be the only president in American history to never see 3 percent economic growth for an entire year, and he had two entire terms in which to try to turn things in a positive direction.
Sadly, things are very likely going to be worse for the economy no matter who wins the election. Under Obama, our national debt, our trade deficit, and most of our other long-term economic problems have gotten much, much worse, and so the table is set for a major economic disaster during the next presidential administration.
And if what I have to share about the future of America in my new book is correct, we are definitely moving into a “perfect storm” that will not just be economic in nature. The things that are coming are going to shake this nation to the very core, and I believe that we will soon face the consequences for decades of exceedingly foolish decisions.
So in the end, we may look back and long for the days of 1.2 percent economic growth, because what is on the horizon is going to make that look like a Sunday picnic.