The Economy Is Falling Apart

baltic dry crash

Repeat after me: the economy is not doing well, and saying that things are okay is a mistake. The economy is not healthy. The economy is, pretty much falling apart. How can we tell? Well, there’s plenty of signs.

Fears of a recession are climbing. CNBC’s Fed Survey showed hat these levels are at highs that haven’t  been seen since pre-2008 crash. In addition to ths, futures have gone negative, meaning that GDP growth will be hard to come by moving further into the year, which is already beginning to take place, with expected GDP growth being revised below 1% now.

But I think to wrap it all up, here’s Michael Pento over at CNBC with an OP ED of his, saying:

But a recession has occurred in the U.S. about every five years, on average, since the end of WWII; and it has been seven years since the last one — we are overdue.

Most importantly, the average market drop during the peak to trough of the last 6 recessions has been 37 percent. That would take the S&P 500 down to 1,300; if this next recession were to be just of the average variety.

But this one will be worse.

What else can we look to as signs of a sinking economy? Well, let’s look at some statistics. Take trucking for example. Trucking is used as an indicator of the health of the economy. If trucking is doing good, then things are generally good. The same goes vice versa. Trucking has been showing signs of a slow-down since late October, and things have not gotten any better since then.

In December, Zerohedge published this, which gave people a more scary reality that things weren’t going well at all:

“Class 8 orders of 16,600 were below our channel check based 22,000-25,000 expectation, dropped 59% yr/yr and 36% from October (vs. the ten-year average 7% decrease in November from October), and was the weakest order month on a seasonally adjusted basis since August 2010,” Wells Fargo exclaimed, before adding that “clearly, November Class 8 orders slowed to weak levels and were beneath expectations.”

Yes, “clearly”:

In addition to this, signs can be seen coming from China of a global slowdown. Take this, for example, from Zerohedge:

Two months ago, long before the WSJ and the NYT wrote virtually carbon-copy pieces, we laid out a list of China risk factors which everyone by now is familiar with. These were as follows:

  • a slowing economy crippled by soaring debt, now over 300% of GDP
  • an economy which is overly reliant on fixed investment
  • an artificially high exchange rate which is adversely impacting exports and impairing trade, in a “beggar thy neighbor” world everyone is rapidly devaluing their own currency
  • the feedback loop of plunging commodity prices and highly levered domestic corporation which can not pay their annual interest expense payments at current prices of industrial commodities, leading to surging business failures and defaults
  • a burst housing bubble which recently popped (although slowly growing again)
  • a burst stock market bubble which recently popped (although slowly growing again)
  • Non-performing loans, as high as 20%, and metastsizing across the Chinese banking sector

The market has been struggling to price many of these into any existing investment theses.

We also said what we think is, as of this moment, is the biggest, and most, underreported risk facing China: social discontent, resulting from a breakdown in recent “agreeable” labor conditions, wage cuts and rising unemployment, leading to labor strikes and in some cases, violence.

To corroborate this, in November we showed a tally of labor strikes through the 11th month amounted to a record high 2,005.  We have updated this to show that in just the last two months of the year, labor strikes in China have exploded, sending the total to a whopping 2,703.

My old history teacher had a saying, and I believe that most people know this: fat and happy people don’t riot. What’s happening in China is that their economy is slowing, and as a result, people are now earning less, and unemployment is going up. Naturally, people will be angry, because they don’t want to go unemployed, because of the harshness of what it brings. Now, imagine that happening here in the US. Remember the last recession? We got Occupy Wall Street tearing up parks and lot’s of stuff, but it wasn’t as bad as what could come with this upcoming recession.

In addition to this, let me mention unemployment numbers here in the US. Currently, the number the media and government like to focus on misleading. Statistics from the Bureau of Labor Statistics show that the US Labor Force Participation Rate have dropped, meaning many people have stopped looking for work. For three months, the normal unemployment rate has stayed at 5.0%, while the LFPR has continued to continue going down. Something doesn’t exactly smell right to me. The real numbers to look at are the U-6 numbers, which is more used by economists, and gives a better picture of things.

Now, shifting back to signals. Back in September of 2015, stocks hit another big bump. There was lot’s of talk of another round of Quantitative Easing, aka QE 4, was being talked of. For instance, here’s Casey Research:

Regular Casey readers know that the Fed’s go-to “easing” weapon is to lower interest rates. But the Fed can’t lower interest rates because interest rates are already near zero.

Burbank thinks the Fed will ease by launching another round of quantitative easing (QE).

•  QE is just another term for money printing…

QE is when a central bank creates cash and injects it into the financial system.

The Fed launched QE1 in November 2008. It ran for 17 months and injected $1.4 trillion into the financial system.

QE1 didn’t jump-start the economy…so the Fed followed it up with two more rounds of QE, known as QE2 and QE3.

The Fed finally stopped its last round of QE in October 2014. By that point, it had pumped $3.5 trillion worth of cash into the financial system.

QE1, QE2, and QE3 did very little for the “main street” economy. But they goosed financial asset prices…

The S&P 500 gained 121% during the three rounds of QE. Since QE ended in October 2014, the S&P 500 has lost 3%.

QE 1-3 pumped trillions into the economy, or more specifically, specific banks and corporate sectors, all while putting on a face and saying practically nothing other than “you can’t question us” in the process. We can’t afford another round of quantitative easing, for another round would mean more money propping up the system that’s doomed to fail very soon.

Finally, I shall point back to another shipping indicator of a slowdown and recession, and I don’t necessarily mean the industry, I mean actual shipping, with water and boats. Zerohedge reports:

Last week, I received news from a contact who is friends with one of the biggest billionaire shipping families in the world.  He told me they had no ships at sea right now, because operating them meant running at a loss.

This weekend, reports are circulating saying much the same thing: The North Atlantic has little or no cargo ships traveling in its waters. Instead, they are anchored. Unmoving. Empty.

You can see one such report here.  According to it,

 “Commerce between Europe and North America has literally come to a halt. For the first time in known history, not one cargo ship is in-transit in the North Atlantic between Europe and North America. All of them (hundreds) are either anchored offshore or in-port. NOTHING is moving.

This has never happened before. It is a horrific economic sign; proof that commerce is literally stopped.”

We checked and it appears to show no ships in transit anywhere in the world.  We aren’t experts on shipping, however, so if you have a better site or source to track this apparent phenomenon, please let us know.

We also checked, and it seemed to show the same thing.  Not a ship in transit…

If true, this would be catastrophic for world trade. Even if it’s not true, shipping is still nearly dead in the water according to other indices.  The Baltic Dry Index, an assessment of the price of moving major raw materials by sea, was already at record all-time lows a month ago… and in the last month it has dropped even more, especially in the last week. Today BDIY hit 415…

Factories aren’t buying and retailers aren’t stocking.  The ratio of inventory to sales in the US is an indicator of this. The last time that ratio was this high was during the “great recession” in 2008.

Hey, Ms. Yellen, what recovery? The economy is taking on water at a rapid rate.

In short, we’re doomed. The long version? The economy, being propped up by Keynesian trickery and Fed manipulation, is slipping, and almost uncontrollably. Perhaps they can somehow continue to hold it off; maybe till Obama is out of office. But in any way possible, the crash is coming, and when it finally hits, it won’t be pretty.

You are warned.


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