Dichotomy- a word that means a difference between two completely opposite idea or things according to the Cambridge English Dictionary.
Day after day we are bombarded in the mainstream media, from politicians, central bankers and the paid performers on the news and financial game shows that we have a booming economy. They trot out “experts” with rosy outlooks, they reduce expected earnings for companies so that at reporting time they can play “beat the estimate”. If that fails to work companies just buy stocks back or use accounting gimmicks to win “beat the estimate”. This usually leads to a higher stock price and a higher payout for those in the C suite. Let’s also not forget about the “two sets of books” that I have written about in the past. There is one set for the SEC that carries a prison sentence if you lie and another report for Wall Street’s consumption. Take a guess the one we see? Corporate buybacks are on pace to set another all-time record if they continue at the present pace- even outdoing last year’s over $1 trillion in share buybacks.
My opinion is that they will continue until the corporate bond market puts a halt to it because of either rising rates or a default that scares the lenders into not lending. With corporate balance sheets full of the most debt they have ever held that is not a far-off idea.
Stocks are just one place where there are many dichotomies. Bonds offer a better look at how “strong” our economy really is. Just a few minor .25 rate increases almost took down the complex, and may have, if China, Japan and the ECB central banks didn’t continue cranking out currency units and debt at a dizzying pace. Even so, just the US slowing down and the ECB pulling back just a touch almost brought the system down again. I have to wonder how a booming economy like ours couldn’t stand some higher rates. Actually, the bond market is totally managed but it is still giving off the signal that the economy is weakening- not strengthening.
I am sure a few out there will be thinking that I must be crazy. I must not know that the first quarter GDP number was terrific. 3.2%!!! Well, if it was also not manipulated beyond recognition and didn’t contain a major portion of that “gain” because debt is counted as economic activity I might be more impressed. I know that earnings reports, GDP, unemployment and all of the reports that we are fist-fed day after day can be manipulated to say anything that those in charge want it to say.
Dichotomy 1- We have 329 Million people in the USA. In a BOOMING economy we are adding (GAAP accounting principles) $6.1 Trillion in debt in fiscal 2019. Folks, that is 18, 327.08 for each breathing person here in the USA- in ONE year. But let’s not forget that even though we have record low unemployment 95 MILLION working age people can’t find a job. Look around and see how many are struggling and tell me if a less than 4% unemployment rate is plausible. IT IS NOT! Take them out and now we each (working person) will owe 25,641.02 just for what we are deficit spending in a year. Oops- let’s not forget those that are retired. That is another 53.5 Million people. Taking them out each person working is on the hook for $33,241.00 just for 2019. I won’t even go into the fact that 157 Million are in the workforce and 169.4 million are taking some form of government subsidy. It appears that the load is getting awfully heavy. 1
Dichotomy 2- The economy is booming- GDP up annualized 3.2% in the first quarter. At the same time 3M is laying off 2000 employees. Chip companies are warning of a slowdown. For the second year in a row retail stores are closing at a record pace. Actually, in 2019 as many stores have closed already as closed in the record-setting year of 2018. This is hardly bullish. Chicago PMI just crashed along with the major benefactor of our latest stock rally- China. The manufacturing numbers are extremely weak and weakening. Add to this shipping, container use, and exports are falling globally. Even trucking is slowing down in the USA and that was before Amazon decided to enter the arena.
Dichotomy 3 President Trump and the democrats have apparently agreed to draft a bill to spend $2 trillion on an infrastructure program. I believe it has been needed for decades. (Maybe if we didn’t bomb other countries and rebuild THEM we might have a few extra trillion to make our roads, bridges and airports safer). But I digress. The point here is that we can’t pay the bills now and here we are digging ourselves into even more debt. Of course, that will raise GDP- just like Obamacare did and adding R&D to the calculation a few years ago. All is great in fantasyland but in the real world things are not as they appear in the ivory tower.
Dichotomy 4- The housing market is still great. I guess that is why Los Angeles, San Francisco, Seattle, and many other major cities are seeing massive increases in homelessness. I guess that is why I was reading last week about a national eviction crisis as people (even working people) can’t afford the rising rents. This is a sure sign of a bubble when large swaths of society are disenfranchised by a few. This will NOT end well. Incomes have not kept up with rising prices. In some less obvious cases many are paying FAR too much in rent or mortgage payments in regards to their income. This is a VERY likely reason retail stores are suffering far more than on-line buying. This market is broken in many places.
Dichotomy 5- Christine Lagarde (IMF) laments that there is not enough inflation. Of course, when you have people pump your gas, buy your food, have all necessities taken care of for you because of your position you likely have NO CLUE. You don’t have to be the leader of the IMF to have this treatment. I am sure all central bankers and those higher-ups in government have the same luxuries. Inflation ONLY benefits the central banks, banks and governments who want more and more debt. Without inflation it may get to a point where the debt could implode because there is not enough capital or assets to pay even the interest. Actually, that IS what happened in 2008 and after a $100 trillion or so in new debt we are still pretending that the debt can be repaid. It appears try as they might the fiat currencies are proving hard to kill. Just today there was an article in Zerohedge about restaurants being squeezed by higher meat prices. If those floods are as bad in the Midwest as reported other items may skyrocket also. But don’t worry- food and energy don’t count in the authorities numbers so there is no inflation.
Dichotomy 6- All is GREAT! Central banks are working furiously together to keep this system going while putting out reports and jawboning about future events that should be good for stocks, bonds and real estate. At the same time central banks bought over 650 TONS of gold in 2018. Countries around the world are repatriating (bringing home) their gold. In 2018 central banks bought 59 TONS of gold in January and February- in 2019? 90 tons in the first 2 months. These are entities that can “print up” any amount of cash they need. Why the gold if all is so wonderful?
Dichotomy 7- Central Banks can’t go bankrupt because they can “print up” any amount of cash they need. I disagree. I believe they also know now that this is not true. People have to be willing to accept your offering. I believe they already know the only way out is to “print” the currencies to oblivion to continue the illusion or let it collapse. December 2018 was VERY telling. I don’t believe central banks, countries, major banks and those in the know would be buying record amounts of gold if they had real faith in what they are conjuring up out of nowhere.
Back in Germany during the Third Reich it was said “tell a lie often enough and it will become the truth.
Many, I believe are being deceived by rising asset prices that are being managed higher as our economy implodes right before our eyes. Of course, 24 hours a day and 7 days a week we are told not to believe what we see but what is said.
We really need to learn from history!