Ominous Portents—–More Evidence That The Global Bubble Is Bursting
by Doug Noland
DavidStockmansContraCorner.com
May 14, 2016
Friday headlines from Bloomberg: “Retail Sales Rise Most in a Year, Marking U.S. Consumer Comeback” and “Consumers Turn Out to Be U.S. Growth Lifeline After All.” Ironically, U.S. retail stocks (SPDR S&P Retail ETF) were slammed 4.3% this week, trading back to almost three-month lows. Poor earnings were the culprit. Macy’s sank 15% on Wednesday’s earnings disappointment. Kohl’s missed, along with Nordstrom and JC Penney.
It may be subtle, yet it’s turning pervasive. Support for the burst global Bubble thesis mounts by the week. With stated U.S. unemployment at 5.0% and consumer confidence at this point still in decent shape, spending has enjoyed somewhat of a tailwind. Yet the overall U.S. economy has begun to succumb to a general Credit slowdown. Despite the bounce in crude, the energy sector bust continues to gather momentum. The tech and biotech Bubbles have peaked. Cracks have quickly surfaced in fintech. There are as well indications that some overheated real estate markets across the country have cooled. Whether it is from China or Latin America or Europe, the rush of “hot money” into U.S. real estate and securities markets has slowed meaningfully.
The downshift of Credit and “hot money” flows helps explain the weakness in both corporate profits and the overall stock market. And with stock prices down year-on-year, Household Net Worth has essentially stagnated. Keep in mind that Net Worth inflated from $56.5 TN at year-end 2008 to a record $86.8 TN to close 2015. Over the past six years, Net Worth increased on average $4.76 TN annually. Such extraordinary inflation in household perceived wealth supported spending – which bolstered profits and underpinned asset price inflation and more spending.
Let’s return to the irony of positive retail sales data and negative earnings. It’s easy to forget that retail had been significantly overbuilt during the mortgage finance Bubble period. The worst of the shakeout was avoided as Household Net Worth inflated from 384% (2008) to a record 484% (2015) of GDP. And while inflating perceived wealth boosted spending, zero rates and manic financing markets ensured another period of booming retail investment (bricks and mortar and Internet). There has, as well, been extraordinary growth in various services, certainly including telecommunications.
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