Powell Just Signaled That The Next Crisis Is Here

Housing and auto sales appear to have hit a wall over the last 8-12 weeks.  To be sure, online holiday sales jumped significantly year over year, but brick-n-mortar sales were flat. The problem there:  e-commerce is only about 10% of total retail sales.  We won’t know until January how retail sales fared this holiday season.  I know that, away from Wall Street carnival barkers, the retail industry is braced for disappointing holiday sales this year.

A subscriber asked my opinion on how and when a stock market collapse might play out. Here’s my response: “With the degree to which Central Banks now intervene in the markets, it’s very difficult if not impossible to make timing predictions. I would argue that, on a real inflation-adjusted GDP basis, the economy never recovered from 2008. I’m not alone in that assessment. A global economic decline likely started in 2008 but has been covered up by the extreme amount of money printed and credit created.

It’s really more of a question of when will the markets reflect or catch up to the underlying real fundamentals? We’re seeing the reality reflected in the extreme divergence in wealth and income between the upper 1% and the rest. In fact, the median middle class household has gone backwards economically since 2008. That fact is reflected in the decline of real average wages and the record level of household debt taken on in order for these households to pretend like they are at least been running place.”

The steep drop in housing and auto sales are signaling that the average household is up to its eyeballs in debt. Auto and credit card delinquency rates are starting to climb rapidly. Subprime auto debt delinquencies rates now exceed the delinquency rates in 2008/2009.

The Truth is in the details – Despite the large number of jobs supposedly created in October and YTD, the wage withholding data published by the Treasury does not support the number of new jobs as claimed by the Government. YTD wage-earner tax withholding has increased only 0.1% from 2017. This number is what it is. It would be difficult to manipulate. Despite the Trump tax cut, which really provided just a marginal benefit to wage-earners and thus only a slight negative effect on wage-earner tax withholding, the 0.1% increase is well below what should have been the growth rate in wage withholding given the alleged growth in wages and jobs. Also, most of the alleged jobs created in October were the product of the highly questionable “birth/death model” used to estimate the number of businesses opened and closed during the month. The point here is that true unemployment, notwithstanding the Labor Force Participation Rate, is much higher than the Government would like us to believe.

Fed Chairman Jerome Powell signaled today that the well-telegraphed December rate hike is likely the last in this cycle of rate-hikes, though he intimates the possibility of one hike in 2019. More likely, by the time the first FOMC meeting rolls around in 2019, the economy will be in a tail-spin, with debt and derivative bombs detonating. And it’s a good bet Trump will be looking to sign an Executive Order abolishing the Fed and giving the Treasury the authority to print money. The $3.3 billion pension bailout proposal circulating Congress will morph into $30 billion and then $300 billion proposal. 2008 redux. If you’re long the stock market, enjoy this short-squeeze bounce while it lasts…

10 thoughts on “Powell Just Signaled That The Next Crisis Is Here

  1. Hi Dave, you have a new reader here. I really enjoy your articles and interviews on yewtube lol. I was really blown away that you recently wrote that the president could sign an executive order abolishing the fed. if you have the time, would you mind emailing me why that notion could become a reality. if you wrote it as satire, then i laughed really hard. but if not, i would really like to hear any reasons as to why. thanks again for all the hard work you make available to newbies.

    1. It was mostly humor but in a way that mocks the fact that Trump peeled off several EO’s when he first took office as if he had dictator powers. The EO should be abolished.

  2. Always like to read a lucid assessment of the economy.
    Had to run out early the morning after Thanksgiving because
    I broke the carafe to our coffee maker. Without realizing that
    the early morning(3am) is when all the madness begins I went
    to that home of the mentally challenged, Wal-Mart. It was the closest
    retailer and they had the carafe in stock. Well to my surprise the parking
    lot was 2/3 empty and navigating the store was a breeze. I picked up the
    carafe and my only delay was checking out, not due to crowds but the
    challenged were having difficulty using the automated check out.
    I know from hearing stories in the past that this store used to be mobbed
    the night of Thanksgiving. To see low numbers of people at the store had me
    thinking that the “consumer” must be in trouble. Your article has reinforced
    my observation.

    1. Nothing like doing “boots on the ground” due diligence, unlike the highly overpaid muppets on financial tv and Wall St analysts,
      who assume everyone is doing well. You can’t get feel for the middle class when your shopping experience is limited to
      the high-end areas in Westchester, Connecticut, and northern New Jersey.

  3. Just drove back from lunch; radio was on the station that carries Rush L. He had a brief soundbite made a by Powell and went on to say the economy is booming. Full blown spin, but as I type DOW is up 490 points, so the financial media must be spinning too.

  4. What will be unanticipated by many, is just how far GDP will decline. Because of the enormous amount of unbacked credit creation and central bank money printing over the last couple of decades, the unwinding of leverage to the downside will be shocking.

  5. Wage tax withholding is down due to tax reform. The IRS released new tax withholding tables for employers/payroll providers early in 2018. Because taxes are down, withholdings go down with these new tables.

    Social Security withholdings (that aren’t affected by new employer withholding tables) are up YOY, and those withholdings are more constant YOY.

    1. Nope. The wage withholding adjustment was tiny compared to the alleged wage growth and employment growth. Wage withholding was flat
      because the wage and job growth numbers are bullshit.

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