28 Signs Of Economic Doom As Pivotal Month Of September Begins
ZeroHedge Tue, 09/03/2019 - 08:03
Authored by Michael Snyder via The Economic Collapse blog,
Since the end of the last recession, the outlook for the U.S. economy has never been as dire as it is right now. Everywhere you look, economic red flags are popping up, and the mainstream media is suddenly full of stories about “the coming recession”. After several years of relative economic stability, things appear to be changing dramatically for the U.S. economy and the global economy as a whole. Over and over again, we are seeing things happen that we have not witnessed since the last recession, and many analysts expect our troubles to accelerate as we head into the final months of 2019.
We should certainly hope that things will soon turn around, but at this point that does not appear likely. The following are 28 signs of economic doom as the pivotal month of September begins…
#1 The U.S. and China just slapped painful new tariffs on one another, thus escalating the trade war to an entirely new level.
#2 JPMorgan Chase is projecting that the trade war will cost “the average U.S. household” $1,000 per year.
#3 Yield curve inversions have preceded every single U.S. recession since the 1950s, and the fact that it has happened again is one of the big reasons why Wall Street is freaking out so much lately.
#4 We just witnessed the largest decline in U.S. consumer sentiment in 7 years.
#5 Mortgage defaults are rising at the fastest pace that we have seen since the last financial crisis.
#6 Sales of luxury homes valued at $1.5 million or higher were down five percent during the second quarter of 2019.
#7 The U.S. manufacturing sector has contracted for the very first time since September 2009.
#8 The Cass Freight Index has been falling for a number of months. According to CNBC, it fell “5.9% in July, following a 5.3% decline in June and a 6% drop in May.”
#9 Gross private domestic investment in the United States was down 5.5 percentduring the second quarter of 2019.
#10 Crude oil processing at U.S. refiners has fallen by the most that we have seen since the last recession.
#11 The price of copper often gives us a clear indication of where the economy is heading, and it is now down 13 percent over the last six months.
#12 When it looks like an economic crisis is coming, investors often flock to precious metals. So it is very interesting to note that the price of gold is up more than 20 percent since May.
#13 Women’s clothing retailer Forever 21 “is reportedly close to filing for bankruptcy protection”.
#14 We just learned that Sears and Kmart will close “nearly 100 additional stores”by the end of this year.
#15 Domestic shipments of RVs have fallen an astounding 20 percent so far in 2019.
#16 The Labor Department has admitted that the U.S. economy actually has 501,000 less jobs than they previously thought.
#17 S&P 500 earnings per share estimates have been steadily falling all year long.
#18 Morgan Stanley says that the possibility that we will see a global recession “is high and rising”.
#19 Global trade fell 1.4 percent in June from a year earlier, and that was the biggest drop that we have seen since the last recession.
#20 The German economy contracted during the second quarter, and the German central bank “is predicting the third quarter will also post a decline”.
#21 According to CNBC, the S&P 500 “just sent a screaming sell signal” to U.S. investors.
#22 Masanari Takada is warning that we could soon see a “Lehman-like” plunge in the stock market.
#23 Corporate insiders are dumping stocks at a pace that we haven’t seen in more than a decade.
#24 Apple CEO Tim Cook has been dumping millions of dollars worth of Apple stock.
#25 Instead of pumping his company’s funds into the stock market, Warren Buffett has decided to hoard 122 billion dollars in cash. This appears to be a clear indication that he believes that a crisis is coming.
#26 Investors are selling their shares in emerging markets funds at a pace that we have never seen before.
#27 The Economic Policy Uncertainty Index hit the highest level that we have ever seen in the month of June.
#28 Americans are searching Google for the term “recession” more frequently than we have seen at any time since 2009.
The signs are very clear, but unfortunately we live at a time when “normalcy bias” is rampant in our society.
If you are not familiar with “normalcy bias”, the following is how Wikipedia defines it…
The normalcy bias, or normality bias, is a belief people hold when considering the possibility of a disaster. It causes people to underestimate both the likelihood of a disaster and its possible effects, because people believe that things will always function the way things normally have functioned. This may result in situations where people fail to adequately prepare themselves for disasters, and on a larger scale, the failure of governments to include the populace in its disaster preparations. About 70% of people reportedly display normalcy bias in disasters.
For most Americans, the crisis of 2008 and 2009 is now a distant memory, and the vast majority of the population seems confident that brighter days are ahead even if we must weather a short-term economic recession first. As a result, most people are not preparing for a major economic crisis, and that makes us extremely vulnerable.
In 2008 and 2009, the horrible financial crisis and the bitter recession that followed took most Americans completely by surprise.
It will be the same this time around, even though the warning signs are there for all to see.
Economic twilight zone: Bonds that charge you for lending
BY DAVID McHUGH and PAUL WISEMANyesterday
FRANKFURT, Germany (AP) — Imagine lending money to someone and having to pay for the privilege of doing so. Or being asked to invest and informed of how much money you’ll lose.
Sounds absurd, but increasingly that’s the global bond market these days. A rising share of government and corporate bonds are trading at negative interest yields — a financial twilight zone that took hold after the financial crisis and has accelerated on fear that a fragile global economy will be further damaged by the U.S.-China trade war.
On Wednesday, for the first time ever, the German government sold 30-year bonds at a negative interest rate. The bonds pay no coupon interest at all. Yet bidders at the auction were willing to pay more than the face value they would receive back when the bonds mature.
The sale added to the mountain of negative-yielding bonds around the world that investors have gobbled up, suggesting that they expect global growth and inflation to remain subpar for years to come. After all, accepting a negative yield on a bond — agreeing, in effect, to lose money in exchange for parking money in a safe place — could reflect expectations that yields will sink even further into negative territory.
“You’re essentially paying a warehouse fee by paying these negative rates,” said Jim Bianco of Bianco Research in Chicago.“This is like a temperature gauge for the economy, and it says the economy is sick,” said Sung Won Sohn, business economist at Loyola Marymount University in California.
Despite its strong credit rating and demand for its bonds, Germany is a big part of the growth problem for the eurozone. The German economy shrank 0.1 percent in the second quarter and could tip into recession with another quarter of falling output.
Negative rates aren’t just an indicator of economic distress. They can cause problems in the financial system, too. They make it harder for banks to turn a profit or for insurance companies to fund their future payouts.
Economists and such outside voices as the U.S Treasury and the International Monetary Fund say Germany could support growth at home and abroad by spending more. Germany’s economy shrank 0.1% in the second quarter, held back by slowing global trade and the auto industry’s adjustment to tough emissions standards and new technologies.
A little bond math helps to understand things. Bond yields and prices move in opposite directions. If investors think inflation and interest rates will rise above levels now reflected in bond yields, they may sell the bond, sending its yield higher. Conversely, demand for bonds — as seen now — drives the price up and the yield down. The more investors foresee low growth and low inflation ahead, the more willing they become to buy bonds that offer low returns. They can earn healthy returns from rising bond prices, even when the yields are negative.
One big reason for falling yields is purchases by central banks. The European Central Bank bought 2.6 trillion euros in government and corporate bonds as part of a stimulus program that ended in December. As the economic picture has worsened, the bank has signaled those purchases might start again.
In addition to its signal about the economy, negative yields can make it harder to fund retirement savings. The high bond prices reflected in the low yields also raise the possibility of a bond market plunge if sentiment changes.
That could happen if the economies of Europe and Japan begin to regain momentum and their central banks call off their easy money policies.
“The worst thing that can happen for these bonds is, God forbid, the economies recover,” Bianco said
Middle Class Death-Spiral: Consumers Have Never Been Deeper In Debt, And Bankruptcies Are Surging
ZeroHedge.com Tue, 08/13/2019 - 16:25
Authored by Michael Snyder via The Economic Collapse blog,
This wasn’t supposed to happen. During the relative economic stability of the past few years, the middle class was supposed to experience a resurgence, but instead it has just continued to be hollowed out. The cost of living has risen much faster than wages have, and as a result hard working families all over America are being stretched financially like never before. Even though most of us are working, 59 percent of all Americans are currently living paycheck to paycheck, and almost 50 million Americans are living in poverty. In a desperate attempt to continue their middle class lifestyles, many Americans have been piling up mountains of debt, and it has gotten to the point where we have a major crisis on our hands.
According to the New York Post, the total amount of debt that U.S. households have accumulated is about to cross the 14 trillion dollar mark for the first time ever…
Meanwhile, record American household debt, near $14 trillion including mortgages and student loans, is some $1 trillion higher than during the Great Recession of 2008. Credit card debt of $1 trillion also exceeds the 2008 peak.
Americans are spending heavily, again — and often recklessly, say analysts.
This is the exact opposite of what U.S. consumers should be doing. We can see signs of a fresh economic slowdown all around us, and consumers should be feverishly trying to get out of debt as fast as they can.
But instead, debt levels just keep setting record after record. In fact, total student loan debt just hit a brand new record high of 1.605 trillion dollars, and auto loan debt just hit a brand new record high of 1.174 trillion dollars.
It would be one thing if we could handle all of this debt, but that isn’t the case. Bankruptcies have been steadily rising, and according to the latest figures the number of bankruptcy filings shot up another 5 percent in the month of July…
Bankruptcy petitions for consumers and businesses are on the rise. There was a 5% increase in total bankruptcy filings in July 2019 from the previous month, the American Bankruptcy Institute said this week. There were 64,283 bankruptcy filings, up from 62,241 for the same period last year.
Unfortunately, this is probably just the beginning.
Right now, most of the country is living on the edge financially, and so a major economic slowdown would inevitably cause another enormous tsunami of consumer bankruptcies like we saw in 2008.
Even now, things are already so bad that many hard working “middle class” workers in high-cost cities such as New York are so financially stretched that they have to rely on free food from local food banks…
“In high-cost cities like New York, personal incomes are not often enough to pay the household bills,” Zac Hall, vice president of anti-poverty programs at the Food Bank For New York City, told The Post. “We are seeing people using consumer debt as a way to make ends meet when they come here,” he added, citing the pressures his nonprofit faces to keep up the distribution of food and meals at no cost to some 1.5 million New Yorkers.
If 1.5 million people in New York are being fed by food banks now while things are still relatively stable, how bad will things be when the economy really starts to tank?
For decades, the “almighty U.S. consumer” was one of the fundamental pillars of our economy, but now that is no longer true. U.S. consumers simply do not have a lot of discretionary income to spend these days, and this is killing major retailers all over the nation. We are on pace to absolutely shatter the all-time record for store closings in a single year, and within the past 7 days more big retailers have announced that they will be permanently shutting down stores.
For example, Walgreens just announced that they will be closing “approximately 200 U.S. stores”… Walgreens plans to close approximately 200 U.S. stores, the company announced Tuesday in an SEC filing. According to the document posted Tuesday on the Securities and Exchange Commission website, the move to close stores follows “a review of the real estate footprint in the United States.”
That wouldn’t be happening if the U.S. economy really was “booming”.
Here is another example that comes to us from Wolf Street…
A’Gaci, a young women’s fashion retailer based in Texas, filed for Chapter 11 bankruptcy protection on Thursday, for the second time, after having filed for the first time in January 2018. This time, it will liquidate. All its remaining 54 stores in seven states and Puerto Rico will be closed – the “bulk” of them by the end of this month.
In addition, we just learned that Party City is going to be closing more stores than expected in 2019… Party City is increasing the number of stores expected to shutter this year.
The New Jersey-based party supplies company said it was looking to close 55 stores throughout the year, up 10 from the May estimate of 45 stores.
I honestly don’t know what malls and shopping centers all over the U.S. are going to do. I once warned of a future in which America’s landscape would be littered with abandoned stores, and that future has now arrived.
For the moment, those at the very top of the economic pyramid are still doing okay, but the middle class is eroding a little bit more with each passing day. For much more on this, I would encourage you to check out this Youtube video by Jeremiah Babe.
I have been writing about the evisceration of the U.S. middle class for a decade, and the condition of the middle class right now is as bad as I have ever seen it.
And as we plunge into this new economic downturn, things are only going to get worse. The middle class is absolutely drowning in debt, and even a mild recession would be enough to financially wipe out millions of American families.
US Credit Card Interest Rates Hit Highest Level In 25 Years As Economy Slows, Fed Eases
ZeroHedge.com Sat, 08/10/2019 - 19:40
The gap between what banks are being charged to borrow money, and what their charging consumers, is widening once again. According to the FT, US consumers are paying higher interest rates on credit-card balances than they have in 25 years.
The average rate on interest-bearing card accounts topped 17 per cent in May, according to Fed data, the highest in the 25 years that the central bank has been making the calculation. Weekly data based on a Creditcards.com survey of 100 national card issuers found an average rate of 17.8 per cent at the end of July, another multi-decade high.
Credit card rates started rising off their long-term lows as the Fed started raising the benchmark interest rate between late 2015 and the end of last year. But issuers soon outpaced the Fed, and rates continued to rise as the Fed embarked on its July rate cut. Now, the spread between the Fed funds rate and the rate that card issuers pay to hold deposits is, at just under 15%, the widest in recent memory. The spread has only been wider once: In the third quarter of 2009.
Analysts blamed a couple of factors for the aggressive rise in credit-card rates: The first, is the CARD Act of 2009, a US law designed to protect consumers from being exploited by credit-card companies. The law limits a banks’ ability to raise interest rates on existing balances. So, since card issuers "can't reprice you once they sell you a card - so they have to price [more risks] in," according to John Hecht of Jeffries, a broker.
Another factor? The perks. Card issuers need to bring in more capital to offset the generous perks that they've been awarding to loyal customers. (WSJ has chronicled the headaches that JPM has endured thanks to its extremely popular Sapphire Rewards Card).
Still, there's reason for card holders to be optimistic. Two of the biggest credit-card lenders cut rates after the July rate cut.Since the crisis, card rates are often set by adding a premium to a fluctuating index - most often the prime rate, the lowest rate banks make available to non-bank customers. The prime rate in turn is directly related to the fed funds rate that is set by the Federal Reserve.
After the central bank’s decision to cut its benchmark last week, both JPMorgan and Citigroup, respectively the number one and two US card banks by loan volume, dropped their prime rates by a quarter of 1 per cent. This will flow through to the rates paid by many cardholders, at least initially. But card rates and prime rates do not move in tandem.
Credit card companies have found other tools to bring in cash, like charging annual fees.
Card companies have also found other ways to increase what card customers pay, for example by using annual fees, foreign transaction fees, and fees on balance transfers, according to Ted Rossman of Creditcards.com. "I don’t think this [Fed] rate cut is a big gain to consumers with credit card debt - [their] rate is already high and even if it goes down slightly...[they] very well might end up paying higher fees in other areas," said Mr Rossman.
There is a record $850 billion in US credit card debt outstanding, according to the Fed. That's a record amount in dollar terms, though it has declined slightly as a percentage of GDP. With economic growth starting to slow, and wages still largely stagnant, banks are debating whether now is the time to push for more growth in their profitable credit card business (and create more balances that can be bundled into securities and sold off of the bank's balance sheet). Hopefully, those that opt for more high-interest rate loans at least understand the risks.
Editorial Note: USE CASH OFTEN; PAY OFF CREDIT CARDS NOW!
Hell's Top Banker Explains "How To Destroy The Global Economy"
ZeroHedge.com Sat, 08/03/2019 - 20:45
Bill Blain’s new book, The Fifth Horseman – How to Destroy the Global Economy, has been attracting much comment. It’s a tongue-in-cheek polemical sideswipe at Central Bankers, Regulators and Politicians for the poor and mistaken policies that have fuelled the ongoing global financial crisis since 2017.
Blain’s book claims to be a hack of emails and documents exchanged between Hell’s top banker and his boss as they plan to extend the crisis they created in 2007 and make it worse... Here is an excerpt...
(Edited version of the speech given by the TJ Wormwood, Chief Demonic Officer – Finance, Lord of 3rd Ring of the 7th Circle, to invited audience at Davos.)
As you all know, I’ve been wrecking finance for millennia.
Nearly every major big idea, evolutionary leap forward, invention and discovery has improved the miserable lot of mankind only through their ability to monetise it. Forget the theft of fire – being able to monetise fire by attracting pretty and willing mates around a warm campfire, or cooking the food others have hunted, is what mattered. Strip out the noise, and the rise of mankind is largely due to improvements in the efficiency and ease of means of exchange.
From the realization hunters could barter their furs for other goods, to the rise of complex products to finance global growth – the innovation of financial markets has been a major driver of success for the Other Side in raising the wellbeing and prosperity of mankind. Pretty much anything that holds back or disrupts trade, increases costs and holds back services is naturally positive for our goal of global destabilization.
So, here is the big plan:
Since 2007 we’ve been turning the Other Side’s successful innovation of financial markets against them. Global Financial Markets are incredibly rich in opportunities to distort truth, hide lies, and undermine mankind – generating immediate greed, envy, suspicion and anger. We’ve uncovered previously unimaginable ways in which to financially screw the World with consequences that impact everyone.
We’ve overlaid the program with our mastery and understanding of temptation, human greed, avarice and pride, while adding subtlety and cunning. We merely suggest and advise. We are facilitating the train-wreck of the global economy by destroying asset values while confounding their understanding of money and wealth – the pillars of their society.
At its simplest form we are manipulating and driving constant market instability to keep mankind distracted. Uncertainty clouds their future expectations – so we keep it raining. A Mortgage crisis one year, followed by a Sovereign Debt crisis the next, spiced with a couple of bank failures, and threats of global trade war. Overlay with confusion and distraction such as social media, fake news, Bitcoin and populism, and it all works rather well.
Keep their leaders arguing. Keep the blame game going.
Our success can be seen in current financial asset prices. These are now hopelessly inflated and distorted by foolish post financial crisis policy decisions. They are bubbles set to pop. Empower the regulators and bureaucrats to compromise finance through zealous over-regulation, making banking safer by destroying it. Usher in a new era of trade protectionism, the end of Free Trade and increase the suspicion some countries are manipulating their currencies for economic advantage. Sprinkle some dust of political catastrophe, the collapse of law, undo the fair, just and caring society, while adding some eye of newt and complex environmental threats. Make the rich so rich they don’t notice, and the poor so poor they become invisible. If the markets remain uncertain, then it distracts mankind from addressing these issues, making society less stable!
There as some things we’re really proud of, including the Euro, Social Media, Investment Banks, the Tech Boom, and especially Quantitative Easing (which is still delivering confusion and pain). New Monetary Theory could prove even better – it shows tremendous potential to thoroughly unsettle confidence in money. Cybercurrencies are particularly fun – despite coming up with the idea, neither we, nor even the distinguished members of our panel of eternal guests, understand the why of them. They are libertarian nonsense – so, naturally we continue to encourage them as get-rich-quick schemes, but they also further undermine confidence in money and government. We made something up in a bar one night and called it a Distributed Ledger - the humans ran with it and invented Blockchain, whatever that might be.
Some of the other stuff we’ve encouraged, such as The EU, ETFs, Hi-Frequency Trading, Neil Woodford and Deutsche Bank look likely to be highly effective vectors of short-term economic destruction and destabilization, triggering systemic market events and regulatory backlashes across markets. We are only now exploring the full potential of market illiquidity to rob billions of pensioners of their savings.
We’ve persuaded investors to overturn proven tried and tested investment strategies and wisdoms, nurturing a whole range of overpriced unprofitable US Tech “Unicorn” companies which we are confident will prove utterly over-hyped and largely worthless. The success of social media, data mining and new tech has increased levels of dissatisfaction and envy – especially in our target younger demography.
The way we successfully pinned the blame on banks for the Global Financial Crisis – despite the fact it was people who wanted mortgages to buy houses and fast cars - ensured global regulators would over-react. We’ve allowed regulators to focus on banks while we target the next financial crisis in other parts of the financial ecosystem.
Regulators forced the banks to de-risk. But risk does not disappear - it just goes somewhere else. While banks understood risk and had massive staffs to manage risk, risk is now concentrated in the hands of “investment managers” who are singularly ill-equipped to withstand the next credit crunch and global recession, (which we’ve planned for next October – Save the Date cards have been sent).
We are particularly pleased that many banks now exceed the 2.3 compliance officers for every profitable banker ratio. Compliance and regulatory costs now exceed 10% of income at some European banks – a stunning success and substantially decreasing the efficiency of banking and exchanges.
We’ve some great new financial ideas we are still experimenting with, some of which show great promise for further weakening society. Facebook Money is going to be a cracker, and I particularly like the Spaceship to Mars project… if only they knew what awaits them…
By hiding inflation in the stock market, we assisted the accumulation of massive wealth by a tiny percentage of the population to ferment income inequality dissatisfaction. When capital is concentrated and the workers under the cosh, it creates all the right conditions for weak disjointed government to aid and abet the rise of destabilizing populism.
It’s highly satisfying to watch the instability we’ve created in financial markets drive fear and distrust across society. The debt crisis we engineered led to global financial austerity, job insecurity, and rising inequality. We were surprised how easily we pushed the Gig economy concept to further exploit and cow workers through regulators and authorities – they barely noticed. Over this we’ve layered whole new levels of anxiety such as the unknowns of data theft, the rise in envy coefficients through social media, fake news while fueling social distrust through resentment.
We’ve managed to persuade Governments to follow damaging and contradictory policies. As society reeled in the wake of the financial crisis, we persuaded policy makers to cut back spending through “austerity” spending programs, simultaneously bailing out bankers while flooding the financial economy with free money through Quantitative Easing.
Effectively we’ve split the world into two economies. A real economy which is sad, miserable and deflating, and a financial economy that’s insanely optimistic, massively inflated and ripe to pop on the back of free money.
The resentment, instability, fear and general sense of decay has paid dividends in our drive to break society by undermining the credibility of the political classes. Our approach to politics has been simple – deskill the political classes, reduce their effectiveness as leaders, while engineering economic, social and financial instability to drive rampaging populist politics – just like in 1932! Populism may ultimately prove short-lived, but it’s difficult to see how the political classes will recover their power in time to reverse the damages being done to the global environment.
While markets have burned, society become increasingly riven, and politics has failed, we’ve distracted the humans from the rising levels of carbon dioxide in the atmosphere which threatens to create global warming and rising sea levels, while plastics poison the oceans and soil erosion threatens agriculture.
Now I love the ravenous hunger and sharp pointy teeth of polar bears as much as the next demon, but needs must... needs must. I was also rather fond of the dinosaurs...
Our approach to ensuring destructive climate change has proved very effective. We’ve supported, financed and advised the loudest green lobbies to ensure their message looks ill-considered, wrong and economic suicide. We also paid big bucks to fund the loudest climate change deniers. Our innovation of fake news to discredit and mitigate anything positive means climate change remains a crank topic – even as our polar bears drown.
Meanwhile, through our dominance of global boardrooms and investment firms, we’ve made sure that large corporates have bought-out and stifled new technologies that could solve the environmental crisis.
Our future looks great – because their future is bleak!