The Economy Is Already In A Recession – Holiday Spending Will Be Dismal

The contraction is accelerating and crosses economic lines and industry lines. In fact, one can say 95% of the economy is driven by the consumer. For instance,  Cummins engine is not a consumer stock but if consumer cannot spend the trucking industry dies. – my colleague, Hal

The Government/Fed can print money to keep the banks from collapsing and to keep the financial system “solvent,” but it can’t print economic activity.  To be sure, opening up the easy credit spigot to car buyers caused a temporary bounce in auto sales.  But this is not sustainable.  At a certain point, the availability of car buyers who can support a monthly car loan payment gets exhausted.  Over 30% of all new cars sold to the private sector are now financed with sub-prime and deep sub-prime loans.  Car repo rates are going through the roof according to my sources in the industry.  Recently a high percentage of car sales were “fleet” sales to the Government.

The truth is, nearly all “organic” economic indicators are showing that the U.S. economy is in a recession.  At some point the narrative that entire world is in a nasty recession except the U.S. economy is going to prove to be a fairytale.  The continued collapse in copper and oil prices reflects this.

Most of the major privately-compiled economic series have been declining down to their 2008/2009 levels and heading lower.  Just this morning, for instance, the industrial production report showed an unexpected .2% drop for October.  The Wall Street brain trust was looking for a .1% gain.

I wrote an article for Seeking Alpha in which I discuss three major indicators which show that the U.S. economy is already in a recession similar to the one that hit in 2008/2009:  The Economy May Already Be In A Recession:  Short Retailers.

Last week the stocks of Macy’s, Nordstrom and Advance Auto Parts all took nasty cliff-dives after their earnings reports.  The results and the accompanying management commentary indicated that retail demand hit a wall in August and the outlook is dismal.  Yesterday it was Dillard’s turn to take a digger, as it missed earnings and revenue bogeys already set very low by Wall Street:

Dillards

From the time Macy’s reported on Friday thru yesterday, after Dillards reported, Dillards stock had shed over 14% of its market value.  This tells two things:  1) market expectations built into stock valuations are way too high and 2) the economy is in trouble/retail sales over the holidays will highly disappoint.

The best way to play this is with Amazon.com.  This stock is by far the most over-valued stock in the S&P 500 on a P/E basis.  The hype, hope and manipulation built into AMZN’s stock is at levels not seen since the tech bubble.  The Company is already quietly offering Prime members a $5 “gift card” if they just download the Amazon phone app and log in. It’s just another form of a “pre-Black Friday” sales promotion.

As my report shows, on a true accounting basis, AMZN is still generating negative free cash flow and is using every accounting gimmick under the sun to cover this up.  My latest AMZN report has updated options and capital/risk management ideas.  You can access the report here:   AMAZON dot CON.

Amazon stock has gone parabolic.  It’s one of the most irrationally priced stocks I have ever observed in over 30 years of participating in the financial markets.  There is a lot of money to be made on the downside and my report shows how and why.

8 thoughts on “The Economy Is Already In A Recession – Holiday Spending Will Be Dismal

  1. It´s amazing how Druckenmiller can beliieve in this stock.
    The only explination I can find is that he has stopped thinking for himself outsourcing the thinking to a hired CEO for Duquesne Capital.
    Since we haven´t heard of any car accident with head injuries or a brain tumour this must be the only explination.
    Or like a famous Swedish businessman said about a Swedish Social Democrat politician.
    “He´s not as stupid as everyone is saying- he`s just having bad luck when he`s thinking”

  2. As an aside, I have been seeing some GREAT sales prices touted as “Pre-Black Friday” sales. I would never go out into the masses during that day (nor camp out), but some of these prices had me pulling out the credit card for small indulgences.

    To see more than one retailer doing this a week before Thanksgiving, just reinforces what this blog and others have been saying with the slowing economy. I know my $$ has been able to purchase less and less over the years with all necessities going up.

  3. more on consumer is 95%: WW Granger; GWW-industrial supplier and a pretty good one at that. top was 250 at end of 2014, now 193

    Rockwell Automation, ROK–was 127 a few times this year, now 103.

    Whats that saying about manufacturing? And then employment.

    Advance auto–for non gaap it excluded the cost of opening and closing stores-gone , vanish, never reported. But virtually all the retailers do that. After all, these are extraordinary expenses–but they do recur year in year out.

    What we should do is companies report their non gaap income for taxes. That would simplify things. Not so crazy, what they report to the public should be good enough for taxes.

  4. An observation about car sales. We know that a good portion of those sales are due to the “sub prime” market. But, what about leases ? I don’t see them mentioned in the story. I would say that the vast majority of cars moving off the lot are due to leases. People making on average, in the US, of between 11 to 17 dollars per hour, cannot afford to pay on average, close to or exceeding 30 thousand dollars for a new car.

    1. There’s not much difference between a lease and a loan anymore. They’re both 100% leverage. With GMAC financed leases, the residual value is set unrealistically high in order to minimize the monthly payment. The U.S. taxpayer will be on the hook for the loss on the residual value because the Govt still backs GMAC/Ally

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