The Economy: It’s Worse Than I Thought

I got an email from a colleague today that said, among other things:  “The economy is tanking and, while you may be the most pessimistic around, you may not be pessimistic enough.”

To that I would say that I’m significantly more bearish than is reflected in my public analysis.  I spoke to a couple people today who offered anecdotal stories about their particular business niches – businesses in which new orders are somewhat tied to discretionary spending – and they both said that new business activity is unusually slow and that the last time they experienced new order flow this slow this was in 2008.

I’ve been suggesting for most of this year that retail sales were slowing and would fall off a cliff heading into fall.  I presented RL as a short idea in my Short Seller’s Journal on August 14th at $108 after visiting the Ralph Lauren store in Aspen.  I was the only person in the entire store and I was being hounded by the salesperson to the point of being uncomfortable.  RL is at $100.80 as I write this, which is a 7.2% ROR in 4 weeks for anyone who shorted the stock.  Based on the point of last trade and where I recommended them, the January 2017 $85-strike puts are up 35% – so far.  But the bigger gains will be made holding RL short when it drops to $40, where it was in early 2009 before the Fed’s money printing stimulated credit-induced retail spending.

My outlook on retail is supported by the BAC credit card spending report posted in Zerohedge today.  Based on BAC “aggregate card data,” retail sales ex-autos declined .1% in August from July and .3% in July from June.  The 3-month average (Jun-Aug) is down .2%. These numbers are “seasonally adjusted,” which means the actuals are probably worse.   BAC’s data for department store sales show that they’re down 4.6% year over year in August.  Autopart sales are in a downtrend and beginning to comp negatively.  Auto parts sales are highly correlated with  vehicle unit sales, which are entering a downturn based on July and August numbers, especially if you strip out Chrysler’s fraudulent sales numbers LINK.

The week retail sales reflect the deteriorating income and financial status of the average American household.  And so do restaurant sales.  Restaurant industry sales tracked by Black Box Intelligence show a .6% decline in August in same store sales were down .6% but same store traffic was down 2.7%. This was the third consecutive month same-store sales declined, with monthly sequential declines in 6 out of 8 months this year.

It’s expected that Q3 corporate earnings will once again decline from Q2.  This will be six quarters in a row that earnings drop.  But it’s even worse than that because the changes to accounting standards (GAAP) have enabled companies to manipulate their earnings reports to the upside.  Despite those accounting gimmicks, earnings continue to drop.

The stimulative effects of the Fed’s money printing program have faded.  The subprime debt default crisis that plagued the housing market in 2008 has been replaced by a general reflation of subprime credit issuance that includes housing, autos, student loans and personal loans.  Synchrony, formerly GE Capital Retail Bank, is advertising a  high yield savings account that pays 1.1% interest, or 8x the national average.  That’s because Synchrony is using depositor money to fund a plethora of high interest rate consumer lending platforms which primarily appeal to subprime borrowers.   I would strongly advise avoiding this savings account because, even with alleged FDIC coverage, you might not see your money when Synchrony impales itself on the toxic loans it makes.  Look for Synchrony to blow up sometime in the next 24 months.  Same with Capitol One,  Ally Financial and Credit Acceptance Corporation, among others.

The Fed will not  only not raise rates this year – or anytime in the foreseeable future for that matter – but watch for signs that another big dose of “QE” is being tee’d up.  Otherwise our financial system and economy is headed into that same abyss into which it stared in 2008.

10 thoughts on “The Economy: It’s Worse Than I Thought

  1. There doesn’t seem to be a lot of volume on these sell offs’ tells’ me they’re up to something.
    They being the ppt’s,esf, fed etc….could it be the us dollar is quietly collapsing behind the
    scenes’? these market “corrections” are not accidental..very fishy JMO Asian markets however!!
    watch this space if you think the FED incompetent lol

  2. How long can faith in fiat, or in other words, faith in fraud and corruption continue? Does faith get stronger as more fiat that is printed by the central banks? As the banks step in to purchase bonds and equities, does this make the corporations stronger? As the rich get richer, and the poor get poorer, do we look around and say to each other, wow, what a wonderful economy we have?

    The equity indexes are at or near all time highs, even as earnings are declining. Does this point make us all want to run to the stores and spend like crazy on holiday gifts this season? Will the retailers be able to rely on a strong holiday season to kick them into the black in November? I wonder.

    The rising homeless data point may give us an answer to these questions. Perhaps the recovery has ended before it even got started.

  3. Hello, my good man…

    It’s been years but here we are again. The gentleman who told you that you are not pessimistic enough is correct.

    Quick observations:

    New York Harbor is as close to a ghost town as you can get. Best I can tell from harbor traffic flows and specifically for the petroleum trade, the economy is dead man walking and I say this having become an optimist over the past few years.

    The restaurant industry is going to be entering free-fall mode soon. The cost to take the wife and kids to a Diner for burgers is the equivalent of a weeks worth of prepared meals at home. Even worse, the quality of food at higher end restaurants is one step above low-grade dog food. My last time eating out was a few weeks ago, when I was served moldy bread at what is a highly rated restaurant in Manhattan. With their costs set to increase, basically to pay professional rates to dishwashers, I see terrible things happening in this industry.

    Retail is shit….’nuff said.

    This might be a crazy observation but the only days there is bad traffic in New York is on school days. When school is out, it’s like driving on a Sunday except for traffic caused by road construction. It’s like everyone works for the damn school system. I don’t know the significance or implications but it just doesn’t feel right.

    And of course, the coup d’état. Pension plans are going to fall like Dominoes while the politicians a rearranging chairs on the deck of the Titanic. There is just not enough Tax revenue to make every public employee a Lottery winner.

    I’m Sofa King stressed thinking about the pending catastrophe…I’m off for a bike ride by the water.

    1. I live by US I95 …in Hope Mills NC … the semi-truck traffic has just crashed … use to hundreds of tucks per hr. … now not so much… bear in mind …here … we have FT Bragg … one of the US biggest and busiest mil bases in the world…We live in a bubble of prosperity like DC… and its is even getting bad here … !

  4. Mr Kranzler, thanks for your great analysis. @KJH, what a great new concept for me to think about……”faith in fraud and corruption”. If you were to ask just about anyone if the had faith in fraud n corruption they would say no. But when one comes to understand fiat currency and fractionalized banking ,just for openers,and understands that g&s are money with non-diminishing value then a cognitive dissonance tends to form. So for one to play “in their casino” and win they must have faith in the fraudulent system. And hold g&s. Knowing that major changes are coming to their system one adopts faith that it will continue until it doesn’t . hhmm

  5. Tied to the economic turbulence:

    Today’s $66 billion acquisition of MonSatan i.e. Monsanto by Bayer (facilitated by low interest rate cheap dough) is an ABSOLUTE TRAVESTY of CATASTROPHIC proportions for the entire world. It’s almost like a coup d’état for New World Order, with a renewed promise of free cancer to every living being in the world. Enforced slavery by being locked inside fraud healthcare institutions!

    These are the real tangible goals that neo-liberal Rockefellers of the world drill into heads of their puppets Bushes, MonsantObama, Clintons etc. to achieve. And they have all the access they need to their propaganda media & propaganda education systems to brainwash all the sheep.

    🙁 ;-( 🙁

    This is so bad, that the consequence of Hitlery scandal may not amount to a hill of beans……For the NWO, it looks like losing few battles along the way, but winning the bigger war.

  6. Mr Kranzler, I work in a medium size car dealer, last month we sold 101 new units, of that 69 were leases. No one can afford to buy. Looks like the beginnings of 08-09 again.

    Keep up the good work you do.

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