As I was Saying: War on Cash

We’ll get to this morning’s retail sales numbers in a moment.  But before we do, a couple of key trends to be thinking about that may take precedence over the short-term news blips:

Over the past couple of weeks I have been mentioning to our subscribers that there is a “war on cash” in progress and that more and more, the press is on to get everything you do in an electronic money system so even the slightest deviation from “the herd” can be spotted as aberrant behavior.

Right on cue, along comes a CNBC story this morning when you need to read which goes into the trend with more data.  The eye-opener is that one-in-ten Americans don’t carry any cash, anymore.  And 78% carry less than $50 in paper money.

I’ll now say publicly what I’ve been telling subscribers for a while:  It may be true that having more than a small amount of cash (like $2,000) around your home might turn you into a suspect of some kind of criminal conduct, but it gets us to a couple of topics which very few people kick around.

Specifically, as the transition to transition to “cashless” happens, how do you think you’ll ever be able to take those gold and silver coins you might have and roll them into needed fiat/scrip when you actually need to spend it?

And more to the point, on the flip side of the “how much on hand?” question:  Who is crazy enough to turn over their whole future to computers, networks, the powers grid, and hackers?

Which gets me to mentioning that “Personal Financial Data Backup Plans” is the top of tomorrow’s Peoplenomics report.  Just so’s you know it’s coming…

Delightful (But Delirious) Markets

Our second point is that markets are continuing to set new highs, no doubt due in some measure to the Fed keeping up the slow QE process along with the large increases in printing of money down at the M1 and M2 levels.

All that money, virtual or printed cash, is bound to “leak” into the economy somewhere and the markets are one of those “wheres.”

To be sure, there are a few reasonable souls out there, like Jeff Kilburg of KKM Financial is quoted as saying as we get closer and closer to 1,900 in the smart thing to do might be to “lighten up” a bit.

From a longwave economics standpoint, this is a very good time to revive the debate over what drives the ultra-long cycles in the economy.  Whether you believe in the 49-64 year Kondratieff (Kondratiev) wave theory, or variants that work out to 73-85 years, the key dynamic which not too many people seem to get is how demographic shifts play into things.

The thumbnail sketch of the problem goes something likes this:  After World War II we had a huge Baby Boom.  And most of us Boomers are at, or near, retirement age right now. 

As some point, we will be taking our life savings, much of it in stocks, mutual funds, 401k’s and the like, off the table.

When that happens there will need to be young people who are ready to step up and buy stocks.

Well, just like things were hitting new highs right up until September 3 of 1929 with the Dow, I think there’s at least an even-money chance that there will be a decline of stocks because over time there may not be enough buyers.

I’ve penciled in some time to look at this more deeply in coming weeks, but the long and short of it right now is that markets COULD be living on borrowed time.  People who are seniors are holding onto their stock (for now) but when the markets begin to turn – even modestly – there could be a whole wave of unexpected “demographically driven selling” and that’s the kind of thing that Great Depressions are made of.

Still, we might also see a major run-up.  Remember, from the market break in 1921, there was an 8-year period that led to 1929.  So, if we’re in that kind of a blow-off,; aided and abetted by excessive money-printing, then we might make it as far as late 2015 or even into 2016.

Once there, however, and with robotics scarfing up the manufacturing jobs, the old paradigm will be in a whole heap of trouble, especially with China’s outlook.

On that, the Hang Seng is back on the positive side of the psychologically important 22,000 level (22,352 overnight) but it has been below that level several times in recent weeks.  Part of the reason for China knocking at our door as the leading economy in the world is that they’ve been printing money like crazy.

But theirs is a circular process, which means they are rolling money as fast as possible into home mortgages.  While they are facing an 18-month low in GDP growth, the Chinese are leaning on banks to “wash” more money into home loans.

All of which has us wondering if former Fed Boss Alan Greenspan’s Bubblemeister of the real estate market might be reprised by the Chinese Central Bank.   Is that odd?  You bet.  But in today’s world, what’s normal?

Maybe America has finally exported the one thing China was lacking:  The concept of home ownership for the middle class.  Just as ours is being tossed out.  Again, though, what’s normal, anymore?

More after this.


Retail Fails

We sort of knew from looking at the Fed’s Consumer Debt Reports recently that people didn’t have a lot of disposable income.  In fact, the one category where there has been continuing growth in the Fed data is student loans.

Unanswered, though, was what the cumulative impact on consumer Retail Spending would be with people trying to “buy more smarts” to get out of dead-end jobs, and all the while trying to pay for ever-increasing healthcare costs.

This morning we get some additional insight as the Retail Sales figures are just out:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for April, adjusted for seasonal
variation and holiday and trading-day differences, but not for price changes, were $434.6 billion, an increase of 0.1 percent (±0.5)* from the
previous month, and 4.0 percent (±0.7) above April 2013. Total sales for the February 2014 through April 2014 period were up 3.3 percent
(±0.5) from the same period a year ago. The February 2014 to March 2014 percent change was revised from +1.2 percent (±0.5) to +1.5
percent (±0.2).

imageRetail trade sales were up 0.2 percent (±0.5)* from March 2014, and 4.2 percent (±0.9) above last year. Auto and other motor vehicle dealers
were up 10.5 percent (±3.2) from April 2013 and nonstore retailers were up 6.5 percent (±2.5) from last year.

From the charts in the news release, we see that auto sales are up 10% but general merchandise and ex-autos were both stuck at sub 4% levels.

Remember, as the fine print says the data is “ adjusted for seasonal variation and holiday and trading-day differences, but not for price changes…”  and about here, any good forensic economics student would look at either M2 (which is up 6% in the past year) or my friend Trader Bart’s fine M3b Reconstructed (up 7-9%) and wonder (*in a Goofy) kind of voice:

Ah yup, Garsh Mickey, whatddah yah think happened?”

Lack of vision, national dream, and …uh…change.  I may have to start referring to Obama as Bush III. Headlines like “American shoppers take a breather after March retail sales surge” certainly put a much for ebullient light on things.  The phrase “sales surge” is what is designed to stick, not the “take a breaker.” 

File under “HappyTalk” or take it to the throne room.

Tomorrow, the Producer Price Index will be released but the biggie of the week will be the Consumer Price Index which we’ll serve up (with a side of ham) Thursday morning.

Dry Ships/Baltic

Looks like the odds of the bottom falling out from under markets is almost passed.  The Dry Ships *(Baltic Dry) index had bounced back up over 1,000 for a while now after dipping into the (worrisome) 900’s for a while.  This morning’s reading?  982…so not out of the woods yet.

Stock futures are about flat.  Option expiration is in two days…

Still Waiting on War

As expected, the anti-Kiev voters in eastern Ukraine are not getting any respect while the rebel leadership in Kiev remains blessed with EU/Western/US money and the hype continues.

Undeterred, however, the eastern groups are now talking about unification.  Missing?  The ultra-right thugs who changed governments in Kiev.

Not making headlines in the Western media is this other story out of Russia’s Novosti news service that “Ammunition for Special Forces airlifted for Slaviansk Operation.”

So let me complete the picture a bit for you:  Ukraine Denetsk region is asking to join Russia.  Others are likely to follow.  Russia is airlifting ammo into the region.

The story of pending war may be off the front pages of most sites, but don’t put your flash goggles away just year.

MERS Hits Orlando

Oh, sure, only one case, but it’s enough to get CDC uptight about the spread of the Middle East Respiratory Syndrome which has come to America from the Middle East.  First case was up in Indiana.  From the CDC press sheet:

A second imported case of Middle East Respiratory Syndrome (MERS) was confirmed late night on May 11 in a traveler to the United States. This patient is a healthcare worker who resides and works in Saudi Arabia. This case is unlinked to the first U.S. imported case of MERS reported May 2 in Indiana. Despite this second imported case, the risk to the U.S. general public from MERS still remains very low. Both imported MERS cases are healthcare workers who recently worked in and traveled from Saudi Arabia.

On May 1, the patient traveled by plane from Jeddah, Saudi Arabia to London, England, to Boston, Massachusetts, to Atlanta, Georgia, and to Orlando, Florida. The patient reported feeling unwell during the flight from Jeddah to London and continued to feel unwell on subsequent flights with reported symptoms that include fever, chills and a slight cough. On May 9, the patient went to the emergency department of a hospital in Florida and was admitted the same day. The patient is isolated, being well cared for, and is currently doing well.

Middle East Respiratory Syndrome Coronavirus (MERS-CoV) is a virus that is new to humans and was first reported in Saudi Arabia in 2012.

Peachy, huh?  Not to make too big a deal about this BUT remember, one of our “economic doomsday” scenarios was an outbreak of a disease that could cripple international air travel and hugely reduce import/export trade.  I wonder…..