On The Home-Stretch To Collapse
Dave Kranzler
InvestmentResearchDynamics.com
April 27, 2017
The warning signs are there but very few look for them or want to see them. But it’s a dynamic in which once you see it you can’t “unsee” it. A teacher I know told me this morning that Colorado school districts are quietly cutting staff across all districts. The only reason this would be occurring is that the State is projecting a decline in tax revenues. The only reason tax revenues would be declining is because economic activity is slowing or contracting. And Colorado supposedly has one of the more “vibrant” State economies.
The soaring level of “hope” that, for some unexplainable reason, accompanied the election of Trump is now crashing. The so-called “hard data” which somewhat measures the level of economic activity never moved higher in order to justify the optimism – an optimism tragically seeded in ignorance. As an example, the Kansas City Fed released its economic survey today. The composite index crashed from 20 to 7. Not surprisingly, Wall Street snake-oil salesmen – otherwise known as “economists” – were expecting a reading of 17 on the index.
As for individual components of the index, the average workweek and number of employees dropped; the production component of the index fell precipitously; and new orders collapsed. In fact, new orders expectations fell below the pre-Trump level. The six-month outlook metric – aka the hope index – plunged to its lowest level since November.
The truth is that all of the regional Fed economic activity surveys were largely driven by “hope,” which registered in the form of new orders for goods that will sit on the shelves of car dealers and non-food retailers and in the form of “expectations” about the level of economic activity in six months.
But there has not been any follow-through in form of actual growth in economic activity to justify the unrealistic level of “hope.” Real disposable income and the real level of retail/auto sales have been declining on the way to a tail-spin plunge. Any pulsations in final retail sales and home purchases have been fueled by the parabolic issuance of sub-prime quality debt. In fact, an increasing percentage of home purchases are from aspiring flippers. We are at the point in the cycle, just like 2007-2008, in which many of these flipper purchases will never end up with end-users and instead will land on bank balance sheets.
The Rest…HERE
