Second Depression Rolls into View

The Second Depression is coming into view.  Even the big Eastern Media are hinting now.  The biggest financial question, perhaps of our lifetimes, is which side of the Replay of the 1929 blow-off market topping process are we on?

It is NOT  a trivial question, as there are two very real possibilities.  If the market is going up, then odds favor the notion that we are now working higher of the short-term low the market put in December 13, 1928. Such a parallel would suggest that we would have nine months of upside left to run. Think market peaks in September and a late October or November crash.

(Continues below)

 

The other case, however, is that we have already peaked.  If this is the case, the market will promptly drop from here after the two day rally.

That long position I’d held in one of the triple-levered ETFs went away at 02/12/18 | 09:40 AM ET.

The market just isn’t feeling right to me.  But the problem GLOBALLY is that a negative mood seems to be gathering strength.

While the early US futures were showing down about half a percent, we were left to ponder what the cycles of ups and downs are trying to tell us.  We’ll lay out some of it in Peoplenomics tomorrow for subscribers.

Bitcoins, I think, are something of a bellwether here.  As of this morning, they were still stuck in the $8,500 to $8,600 trading range.  But, this leaves them in the downward channel.  Once they break out to the upside (if, indeed, they do) it would give me a lot more confidence to go long the market.

Were any of our children to ask, now is not a bad time to have things like retirements sitting in a stodgy parking place.  Cash is boring, but…

  • Bitcoin is stuck in a trading range.
  • Stocks have broken out of a downward decline, but only perhaps in the short-term.
  • Bonds are problematic, too.  After dropping (basis the 10-year) to as low as 1.37% interest in July 2016, we have seen rates go up to this morning’s 2.86% range.

That would seem to signal that the long wave economic bottom has passed and good times are ahead for all.

But, not so fast.

If you look at the five year chart of the ^TNX on Yahoo, we may be close to completing a bounce after which we could fall back into negative rates.

Specifically,  if we use the mid 2016 low and then plug in the 2.60% in December of 2016 as a wave 1 up, then Wave 2 should have dropped into the range of 1.66 to 2.13 – which it did with 2.06 in September of 2017.

And that sets up a rally to the 3.83% (and maybe over 4%), but those are not likely sustainable number.

Bring circles us back to March 22, which is a possible crash date UNLESS the market promptly sets new highs.  And this, in turn, is looking like the weaker case by the day.

Whew.  So into the headlines to see what is driving:

Treasury Budget Data

If you click over here, you will see Treasury receipts were up compared to year-ago December figures, but only up 2%.

That is bothersome because when you run the money supply figures from the Fed (H.6 money stocks) what you find is that the money supply was up 4.7 percent  while Treasury receipts were up only 2%.

Just hold that thought, for a second now and let me jump to the BIGGEST Story of the Day:

There’s growing talk of a downturn in 2019 says the Washington/Amazon Post.

The Curse of Financialization

Whatzat?

We live on an utterly insane planet.  A short mental exercise will reveal some of the insanity and explain why a Second Depression is necessary.

First, we’ll click back to the 1920’s.  America was a nice blend of technological progress (electricity and radio plus autos coming of age).  But, as we all know from the history books, it all collapsed into a heap when the financialization of the period failed.

The farms could still produce food – but too much meant falling food prices – and the race to the bottom was on.  Those who cut prices first sold crops.  Those who didn’t?  It was ugly.  Same thing in manufacturing.  As consumer debt tapped out, prices had to come down…which they did all over the board.

That’s how Depressions work.

Now, let’s go back to the question raised by a reader on the discussion side of this site the other day.

Do you think the Velocity of Money has bottomed?

Critical question that must be understood:  Money, understand, is a manufactured product.  And in order to do its magic in an economy, it needs to change hands.  Every time it changes hands there is “economic activity.”  A sales commission is paid, title changes, a resource goes to work…

Think of the Velocity of Money as being roughly the same at the Inventory Turns Rate in manufacturing.  the more your inventory turns over, the faster and better your business is operating.  But the same works the other direction, too:  When no one is buying, inventory piles up.

In finance, so does money and it’s annotated as the collapse of money turnover – called Velocity at M2.  And in the most recent data, Velocity is STILL a disaster:

To be sure, there’s a little blip, but little blips don’t save us.  Besides, the only number than really matters is Retail Sales per capita.

We will have new data for the month tomorrow morning over on Peoplenomics, but we can look at last month’s data.  As we do, remember money is up 4.7%.

Advance estimates of U.S. retail and food services sales for December 2017, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $495.4 billion, an increase of 0.4 percent (±0.5 percent)* from the previous month, and 5.4 percent (±0.7 percent) above December 2016.”

Remember:  Fresh data is due, but if we look at two factors, we can estimate that we are still stuck in a No Grow Economy.

First, let’s assume the numbers are perfect (they’re not, really) and pencil this out:

With sales up 5.4% and money stocks up 4.7%, we need only account for growth of 0.7%.

Since we know US population was 324,459,463 in 2017 and it’s now 326,766,748, that is an increase of what percent?   Repeat after me: 0.7%.

In other words, with this one devastatingly simple series of data points, we can see how we were (as of December) still stuck in a zero growth economy.

And this circles us around to immigration.

Regardless of the right/left, republicons and demoncrats blatherspeak and spew, the fact of the matter is this that if population per capita spending is stuck at zero, then the easiest way to “fix” things is to pour in more people.

Tons of them.  And that’s what the GOP can’t seem to calculate, while the demo’s are working it as a two-fer – getting people to consume more crap AND getting a fresh crop of gullibles AND sure, let’s toss in umpteen ESL teachers, too.

You see how this works as a business model now?

Trump wants to build a wall – and they will result in some jobs.  And it’s a nice public works deal – shades of the Depression, huh?  The modern era’s version of Grand Coulee dam.

The Schumerviks and leftover Obamanistas want to flood the country.

Of course THEY don’t tell you that America has gone from being 85% Aglo heritage in 1960 to just 62$ today.  And God help someone like Jeff Sessions who is old enough to remember the economy of America before we imported growth by throwing open our borders.  See how Sessions if being skewered by the left today

But things aren’t all bad.  In fact the NFIB optimism index is just out:

“The Small Business Optimism Index jumped two points to 106.9 in January and set a record with the number of small business owners saying Now Is a Good Time to Expand, according to NFIB’s Small Business Economic Trends Survey, released today.”

And Bloomberg report “Americans Expect Biggest Pay Jump in Years.

For now, though, Ure’s truly is patiently waiting in cash.  Maybe I will wade back in tomorrow, but for this morning?

We notice all the hype about the Obamas and their painting’s this morning.  Seems to us, there was a better painting to base Obama’s painting on:

40-minutes from the open, the Dow futures were down 100.  Maybe we’ll get long tomorrow…time will tell.

Tomorow in Peoplenomics:  Occam’s Spreadsheet where we try to calculate what’s next.

Comments

Second Depression Rolls into View — 34 Comments

  1. Simply put George there will not be a second depression never will be as long as you hold on to those old ideas and charts you’ll be wrong but once you accept the reality that were in a digital age now not a paper age then you can reevaluate the future have a good day may all beings be lovingly for Phil’s

  2. Just a passing observation, When I was a Child in Denver Colorado we use to see quite a few beggars on the Streets, The war came along and after the war very few were seen for many years, again we see many beggars on the streets, meaning times again are going to get very bad for the average American, Like a fish we start rotting from the head first meaning our so called Government.

  3. Hi, George,

    I find China quite bizarre. Since World War 2, it has been a communist country with a supreme dictator. It remains so today. Strangely enough, China currently has a stock market which has yielded a number of billionaires, some of which have recently been “rounded up”, imprisoned, or killed. Its currency cannot be exported, unless a Chinese person “launders” money by purchasing expensive items that are again sold in another country’s market. Some wealthy Chinese have purchased real estate holdings in Australia and in Europe as a safe haven, while others bought unique items that could be sold in auctions or specialized markets elsewhere.

    Nancy

    • That is not entirely accurate. I have $10,000 physical Yaun in cash. I purchased it years ago as an insurance policy for “Red Dawn” the remake. I just went to wells Fargo and said I was going to take a trip to China and needed some yaun cash fand they ordered it and I got it 1 week later at the bank, Had to pay a $50 exchange rate service fee. And that was that.

      But that may have changed. I did that 5 years ago.

    • My hopes and dreams is that the world will get a brain and stop all this nastiness before I die. All of these countries are rich in heritage wonderful cultures unique and special monuments and national treasures of some of the most beautiful buildings temples and scenery.. All of which I’d personally love to see and enjoy.
      I’ve visited with people from many lands and cultures each proud of their heritage and seems everyone has the same fears that everyone here has. Which makes me think it’s not the people.. More than likely some nasty puppet masters instigating this whole horrible mess.
      Just my honest opinion..

  4. i post a comment every so often. i never use any caps nor any all caps,cyber yelling,except with the name logon. it seems on today’s thread at time stamp 10:44 another T posted a comment. so i post this as “t” and will continue to do so as to not impose on my own standards while causing you,or fellow posters,any grief. i enjoy the option you allowed to post comments and thank you for a wonderful website.

  5. The USA has been in a recession for the last 10 years. The government has been relabeling inflation as growth. You folks up there treading water in that culture can’t detect how hollowed out the economy actually is. Personally I call that much recession a depression. And if the financial paper like derivatives, CDS’s, etc. Are removed from the GDP numbers, the USA economy is much smaller than china’s.

    And the markets, I use that term loosely, are artificially propped up with printed money, about $100 trillion worth in the last 10 years. Once interest rates were driven to zero, actually negative if you know how to calculate, corporations borrowed money to do stock buybacks to keep stock prices up. There is absolutely nothing in the fundamentals to justify current stock prices. And once interests rates rise, these corporations will be insolvent. All the banks are already solvent, they are allowed to value any paper investment they have at whatever value they choose, not mark it to market.

    I find it astounding how many financial people still act like there are markets out there. Kind is scary, actually.

    It’s a beautiful situation if you are outside the USA with capital waiting for the system to reprice itself. You can expect economic colonization of the country at some point, mainly by the Chinese ready to cherry pick through the bargains of corporate culture with some of the $3 trillion in USA debt they now hold.

    As I jokingly tell my USA friends, have your grandchildren learn mandarin like Trump’s, at least they will be able to communicate with their employers as they clean their buildings and mow their lawns.

    • What you forget is that the majority of US citizens aren’t a bunch of sissy`s. They will do whatever it takes to survive & win. You must spend too much time on the West Coast.

    • Wow…sitting at the clinic spending another seven day cruise for two to the Bahamas or 1/10 of a new tesla gazing at a realistate magazine..
      The average low cost home here.. Just under a quarter mil. To one mil. Now these aren’t the houses on the hill the million dollar ones are close though.
      Here is what gets me.
      The average wage for a common laborer is 9.50 an hour to 12.50…professional wages.. 19.99 to 35.00 with the thirty five almost unheard of..most of the ling term professionals like my bank manager is making just under that.
      So..where are these people working to afford a house that costs that much? If the average house cost is a quarter mil then just off the top a couple grand house payment. Taxes and all the rest..realistically you have to be clearing five grand a month..

  6. A downturn of the economy is one thing – but if you combine it with social upheaval and an apparently uncaring government . . . watch out!

  7. “The market just isn’t feeling right to me.”

    It’s like the ‘Bachelor’ on the TV ;-), how could so many girls be sooo wrong??

  8. I seem to be missing something in the entire discussion vis-a-vis our betters motivations.

    So a growing population increases consumption…at least on some basic levels…food, shelter, clothing, etc. I can see that.

    However, if the imported population are not (in some cases cannot) increasing their personal productivity beyond their “survival needs”, all that is being done economically is adding burdens to an already stressed system. More energy, water & sewer demand and so on.

    Won’t this immigration flood accelerate economic failure?

    To say nothing of greatly increasing the potential for ethic & racial conflict when the wheels fall off.

    The Europeans immigration scheme has resulted in multi-generational, unassimilated welfarites, so it should be clear now this scheme is doomed to fail here too.

    Is it really all just a short term grab for power & wealth? Or are they just crazy?

  9. Re: Washington/Amazon Post article

    The overlords believe in Natural Law and their big moves are always telegraphed on the premise that they have to tell us what they are going to do to give us the opportunity to not give permission. However, the bastards usually give very little time for us to stop them. Watch out, the axe is going to fall.

  10. George;

    If I had to pick a day in March it would be March 26th. Assuming that (INE) launches yuan-backed oil futures contract trading. Oil futures contract priced in yuan and convertible into GOLD! In addition Russian looking to stop using all SWIFT transactions. Days of PETRO $ NUMBERED!

  11. My opinion of the Obama’s portraits is it looks like a cartoon version of them. How appropriate.

      • If they turn them into a postage stamp and you buy a first day cancelled issue or something like that, you could hold the stamps as an investment.

  12. George. As the market soars one day and plunges the next and the greater depression is just around the corner, is it time to completely abandon the Warren Buffet investment philosophy. Buy and hold ‘em forever?

    • Bob…I would say YES. As a buy & hold investor who only sold out my entire position once before Y2K in case the electronic world ended, I think we are near a complete sell out day. When is the question?

      • Perhaps a sellout day is near, but what to buy in bad times is always a tough call. Cash is king(if it’s not fiat), but fiat can be called, inflated, or otherwise made worthless. PM’s will go down to a degree and they have limited convertibility today. We can only buy so many necessities, and everything has entropy. Food goes bad and supplies rust or rot. The RIGHT stocks can be OK long term IF the social contract holds. Security is a big deal, as is the ability to move from or to an area. The open question is where and how to store wealth, and in what form. Return ON investment is a far lower priority.

    • Don`t worry. Keep doing what you are doing, but have stored some food, water, ammo, gold, & silver to give you some time to develop a game plan if the social contract expires.

  13. Great article..

    https://www.youtube.com/watch?v=XAZ62HGLJSs
    https://www.youtube.com/watch?v=5OU-mDo5tv8
    https://www.youtube.com/watch?v=Ez0r1touRcg
    https://www.youtube.com/watch?v=3QjufrxigE4
    https://www.youtube.com/watch?v=ROfQcfpc7WQ
    https://www.youtube.com/watch?v=kRG7Ryz6feY
    https://www.youtube.com/watch?v=RjMXFOMhbeQ
    https://www.youtube.com/watch?v=EobFYv63Yzc

    Coming to an economy near you!!!
    reminds me of a boss I had. He grew up with his eleven siblings living in an old box car left abandoned.
    My father raising his sister on the streets of Chicago.( what a lot of people don’t know is that the chicago crime bosses actually brought milk and eggs and bread to severly depressed area’s)https://rarehistoricalphotos.com/al-capones-soup-kitchen-great-depression-chicago-1931/ . my mother. which brings up the story of how socialist dictators become dictators.. unfortunately the people that went through the turbulent times have almost all gone they seen the despair the regrowth was instrumental in the rebuilding of our nation. so their help in directing us are almost all gone. leaving those that haven’t ever lived through anything to find their own way. we destroyed our industrial complex built a society and economy on consumption and higher profit.
    this time though.. We don’t have the industry to rebuild us.https://www.youtube.com/watch?v=A7m6b1cyRyo. our country is a consumption economy not a production economy like we had before.
    https://www.youtube.com/watch?v=WI1i5yhwOz8
    https://www.youtube.com/watch?v=ul0mg0XuNpo
    https://www.youtube.com/watch?v=ZI_j6_Npnfw

    • This is really not that much different from the government handing out food stamps or surplus cheese or the Romans handing out bread . . . keeps the economically poor willing to hold off revolution. (This is where the UK failed at the beginning of the industrial revolution – if they had been more ‘caring’ of the poor, the stresses of society like that the French experienced would have not been so feared.)

  14. If the market goes down today and closes at a point wiping out all of yesterday’s gain, the market would point to being on the right side of the 1929 chart. If the days downturn wipes out 50% of yesterday’s gain, the market would point to being on the left side of the 1929 chart. If the market goes up, the market would point to being on the left side of the 1929 chart. This gives a 66 2/3% chance of the market being on the left side of the 1929 chart. This is making for a very interesting week.

    • DOW measuring point 24,191. This is the point to use at today’s close to determine if on the right or left side of the 1929 chart.

      • The above is the bottom measuring point for the Dow. The DOW top measuring point is 24,602.