America the Beautiful is Broken
The twaddle that comes out of the White House is deep right now. When our tottering president isn’t out enjoying a bike ride and falling down because Putin put gum in his stirrup so that he couldn’t get his foot out to steady himself, he is assembling a colorful team of Frisco-style professionals highly qualified in the field of transition to guide us through the vicissitudes of war, plague and famine that are swirling around the entire globe right now. (“Frisco” is the name the city loves to hate, so I chose it intentionally for a city I once found beautiful.)
The LGBTQRS+++ hip chick that is the president’s talking mop at the press secretary’s podium spent her morning yesterday assuring us all that we are experiencing a “period of transition” right now — something I am sure she has much experience with — going from times of economic strength in which the vast majority of us are doing great into even better times. Thank goodness for people who can guide us through transition to understand what we are going through and where we will end up, which will be — if we follow MoJoe & Co. — coming out the opposite sex from whatever we we were when we came into this world:
The primary accomplishment of Team Biden by the end of his one term that has somehow managed to be even more divisive than Trump will be to recolor the flag behind her with prettier inclusive rainbow stripes than the binary red and white that it historically displays. Until then, at least, we now know what “Build Back Better” lookslike. According to Jean-Pierre, we are already there and clearly moving into even better times.
It would be my own analysis, on the other hand, that if she and her colleagues don’t see a recession anywhere in sight, I can recommend an eye doctor for all of them. Their own Dr. Powell Fauci Magoo, who, incidentally, was also Trump’s White House physician, doesn’t seem to be serving them well. In the very least, I recommend they step outside the White House for a few moments to escape the curling rings of herb smoke that cloud their vision and take a look around. Perhaps I can provide a guided tour for her, though I am sure she will hallucinate some deep state of Democratic delusions she wants to see so that her trip is not as bad as mine or yours is and is about to be:
What is the true state of the disunion?
While we continue to hear, albeit less confidently now, about the economy being strong, what I see is that the economy has rarely looked worse in numerous ways. Obviously, I am not smoking the right stuff to enjoy the “economy as it ought to be” trip; but here is what I see in black and white when not blinded by so many pretty colors swimming around my head as MoJoe & Co. apparently see in theirs.
First, I note that increasingly a number of voices in the financial press — some mainstream, some not — are starting to hum along to my familiar tune — not very loudly or clearly yet, BUT they are starting to pick it up:
Phoenix Capital now says, “The U.S. is Already In a Recession… Here’s How to Profit From It!“
At least, some people can see the obvious that it does not pay to see when your job (or next term) depends on your convincing everyone they are seeing something else.
Phoenix presents as evidence the rather sharp decent of Walmart and Amazon into the ashes of retail.
Bill “the Dud” Dudley, a former New York Fed chief and one-time vice chair of the Fed’s money-printing FOMC, says with a friendly smile, “Welcome To The Recession.” For a moment there, it almost sounded like he agreed with me that a recession is already here, but in typical bansker safety-net style he adds “in another 12-18 months.” Still, that is better eyesight than can be found in the White House. He, at least, is certain the blurry blob he sees up ahead is a recession, and for a Fed guy he’s speaking rather out of turn:
That’s hardly anywhere near as comforting as Jean-Pierre. I think I’ll have what she’s having.
Just to be clear, Dudley states,
So, not only can some people see a recession up ahead, but they are certain that it is “inevitable” and that a soft landing is a dream to be abandoned.
The determining factors for the quality of our landing that Dudley lays out (the reasons we had better hope they line Powell’s runway with lots of bouncy houses and foam to soften the landing) are as follows:
In other words, this:
Biden and his talking mop on the other hand assured us that “recession is not inevitable” and is nowhere in sight. That is because, like the coyote, they forgot to look right beneath themselves. Oops.
Some others also see a recession as “inevitable” and see happening in the near term as “more likely than not”:
Since people are not inclined to take my word for it, let my have a Nobel economist (I realize they cannot usually see a recession until it is behind them) reiterate the points for me as he did earlier this week:
Biden, on the other hand, assured everyone on the same day that another prize of an economist, Larry Summers, assured him “there’s nothing inevitable about a recession.” Never mind that even Summers did say a recession now looks highly likely … but just not … “inevitable.”
Over the weekend, Nomura became the first bank to place the recession squarely within 2022.
The Atlanta Fed, meanwhile, is now prognosticating the 2nd quarter of 2022 closes with precisely zero economic growth, which will still leave us in a trough that began last quarter. If that is the case, then GDP will have continued to scrape along a ceiling that is 1.5% lower than GDP was at the start of the year, now half a year gone by, meaning we entered and remained in a GDP trough since the start of the year.
Amazing. People are starting to look up and see what has been obvious all around them for months now and are finally whipping up the courage to say what they are seeing.
Nomura believes the Fed will skid right on past the QT stopping point as predictably as Wile E. Coyote skids past the cliff edge. Biden believes, if you don”t look down, what’s down there can’t hurt you. Of course that was what he believed when he was out riding his bike, too.
Goldman Sachs is another bank that now joins those who are humming the same tune to say, at least,
How “front-load[ed]” they don’t say. They, of course, expect it to be shallow and clear up like a short cloudburst.
Summarizes the New York Post,
OK. Well, none of the banks, except the Atlanta Fed, are quite with me yet, but they are all getting closer and closer by the day.
Now that the experts are lining up on the recession side of the fence, let’s look at a short list of major weaknesses I see in the US economy that are screaming recession is here or near:
The auto industry remains a wreck
In a recent article titled “The Real GDPig was a Whole Lot Uglier than it Looked!” I dug deep beneath the Bureau of Economic Asininity’s surface GDP numbers to reveal how the auto industry has been in a long slouch and was, contrary to overt claims by the BEA, a major factor in pulling the economy down last quarter and the quarter before. There was something I noted, based on loads of evidence from the BEA, that was seriously wrong with the BEAs claims about automobiles driving GDP up in Q4 and then down in Q1, probably because the industry is in such disarray that BEA doesn’t know how to sort out the anomalies in its own numbers.
The auto industry has also been a major factor in the superheated CPI reports because scarcity due to lack of production has been driving up prices. Many tried to claim the auto industry was turning around, using it as a sign that the negative GDP print in Q1 was a one-off. I did not believe evidence bore that out, and that has turned out now to be the case:
While that is a global production situation, it doesn’t look any better in the US:
Manufacturers are still warning about supply constraints and an inability to manufacture at full scale. The auto industry has always been a major component in GDP and is continuing to pull it down. Some economists thought the industry would start getting back up to cruising speed this quarter. That does not appear to have been the case.
Well, that just doesn’t sound good at all, and that was the area where the optimists were most expecting some reprieve after the negative Q1 GDP print, which they chose to believe was the anomaly, rather than accept the idea that the high GDP increase in the quarter before was the clear outlier from the trend.
Retail remains a mixed bag
In another recent article titled “The Retail Apocalypse was Bloodier than it Looked,” I similarly described how the retail industry was a much bloodier picture than what many economists were making of it. It seemed like major retailers got ready to throw a party and one one came. Last quarter they stocked up all they could and remained laden with inventory from imports that are mistakenly thought to subtract from GDP, but that is a misunderstanding of how they are merely reconciled back out of other GDP inputs in which they are embedded.
This quarter major retailers are threatening to unload, and that is seen by some as possible hope for a boom in retail; but at what price?
It is hard to imagine how massive price slashing to near-zero profit margins to unload inventory no one wants to buy is going to prove to be a positive for GDP!As reported in the headlines, GDP is measured in inflation-adjusted dollars, so I suppose the impact of the mess in retail inventories and sales will depend on how much prices are slashed and how successfully that gets consumers to pick up the unwanted merchandise. Regardless of how it impacts the GDP number, this extreme dislocation clearly speaks of a badly broken economy, not one humming along like a new car … or like new cars used to hum along. Sounds more like one that’s humming my tune.
Here is where the numbers, again, get skewed: If inventory is so high relative to sales that retailers are now forecasting clearance sales at 50% off just to get rid of the excess inventory, why was the inventory-to-sales ratio so abysmally low at the start of the year:
Sure, it’s rising (minimally), but it remains deep in a pit that matches back to the days of the Great Recession. Usually a high inventory-to-sales ratio is considered recessionary, such as seen in early 2020 when inventories were at normal numbers but sales fell off a cliff as we crashed into the world’s shortest recession. The number, then, immediately plummeted during reopening, as inventory was sucked up and new inventory couldn’t get shipped to bring us down to where we are now. The ratio of inventory to abysmal sales has only recently begun to rise, and that is mostly because orders that didn’t ship or did ship but got hung up in ports, finally arrived at warehouses.
So, what does it mean if inventory-to-sales-ratios are still remarkably low but warehouses are overfilled, other than that people aren’t buying the stuff at any price. How is that not also as recessionary as the number at top. In this anomalous environment one has to look past normal formulas. It’s not that the ratio is low because sales are sucking up all the inventory, as would normally be the case. It’s that the supply side market is frozen and retailers cannot offload the inventory that all suddenly arrived way late. That is not a “strong economy,” in spite of what the sales ratio might normally mean. It is a totally dysfunctional economy.
It’s a disaster is what it is; but some economists looking at it and not thinking through the present peculiarities will say, “No, a low inventory-to-sales ratio means the economy is hot.” It doesn’t if major retailers are telling you they are forced to have major clearance sales and slash profits to almost nothing just to offload stuff they can’t get rid of! Normally, when inventory is that low relative to sales, prices are high and rising because it means demand is hot so stuff is blowing out the door to where inventory cannot keep up.
Right now, I’m not sure what it means since retailers say inventories are high because they can’t get rid of it when that should mean a high ratio. Something is broken. Likely it means that backlogged inventory arrived all at once a day late and many dollars short for the retailer. Lest you think I’m the only one who is struggling to rightly understand the peculiarities here, let me quote the expert in the article:
That’s a mess, not strength. That is log jams clearing through the ports then jamming up in warehouses, causing aberrations in how things are reported. Dysfunctional is not strong. Even executives at the…
The truth is retail sucks so bad right now that even the retailers have no idea what to make of it, neither do the shippers. It’s just baffling whiplash. “Destroyed balance sheets” are not the stuff of strong economies. What we have is a trainwreck or a shipwreck, and retailers and shippers alike are struggling to figure out what to do with it and what it really means.
Housing prices and housing sales are already falling as mortgage interest has more than doubled. Consumer sentiment is already at an all-time low. (Hence the need for Jean-Pierre to tell us things are not as bad as they feel right now, and we are transitioning from great economic strength to strength that is even built back better.)
The housing market isn’t at a level that will by itself put us into recession just yet, but it is certainly sliding rapidly that way … and rather all of a sudden, given that Fed interest rates are still on the hot stimulus end of the Fed’s normal scale. That is because mortgage rates our outpacing the Fed’s tweaks, anticipating where things are headed:
Prices have stalled and have begun to follow sales down in some areas. Employment in the industry definitely has started to fall. What housing moves now foretell is that, as all the other forces mentioned above drive us quickly into recession, housing will be bringing up the rear to stomp us down deeper, given that housing the biggest GDP drivers in the US economy, being a major factor even in retail sales of all the items that get built into a house, plus all the new furniture that fills the new homes.
So, while the Biden-Powell team are calling all of this a strong and resilient economy, you had better think twice if they try to sell you choice waterfront real estate in Florida. It’s probably not in Miami or on the Gold Coast.
The golden oldie of America’s pride
If America’s economy is looking strong, why is America’s most golden of all cities now referred to in The Atlantic as a “failed city?” Herb Caen, San Francisco’s “beloved old chronicler,” once said that, If he ever got to heaven, he’d look around and say, “It ain’t bad, but it ain’t San Francisco.” To read The Atlantic’s description today and many others I’ve read over the past two years, he might say today upon opening his eyes in San Francisco, “I knew I’d wind up in hell.” It’s such pretty beaten up version of the city he once loved that he would only recognize it as some upside down version of the old San Fran.
Says a modern-day liberal chronicler,
Today’s scene looks so bad it may finally liberate liberals from their own liberalism. Here, too, the smoke of herb has long circled the heads of those that lead, and look at how colorfully banal it has all become:
I used to think San Francisco was America’s most beautiful major city — the golden lady in my opinion — even if too liberal for my taste. Not now. Even the people who used to feel privileged to live there want to get out of town and head for the hills … forever. As they do, Californians are taking the values that destroyed their great cities and transporting them like transplanted cancer cells to Idaho, Montana, Colorado and Wyoming so they can wreck all that is beautiful about those places, too, replacing farmlands and ranches with MacMansions and shopping centers in order to do it all over again.
But I digress. Let it suffice for now to say, the picture of San Francisco as it has become is a pretty good metaphor for the US economy as it has become. I’ll leave you, then, with words of the modern-day chronicler above:
It’ll all get so much better when the water from the parched Colorado River is completely shut off later this summer, driving LA water-mob slobs to storm SF to get their hand’s on some liquid that may soon sell for more than the city’s old gold. The old lady, drowning in wokeness and tears and suffocating in the worn-out wraps of her own regulations and process has been laid to rest in a graveyard of intentional squalor for the sake of the impoverished at a cost of $60,000 per tent space born by the SF taxpayers. I’m sure the tolerance of criminal decline seen in the “smash and grabs” I wrote about at the start of the year for RT.com didn’t help. May she Rest In Rainbows as a testament to all that is dying in liberal, woke Amerika.
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