I have had a rough time for the last few weeks coming up with commentary that has anything new to say. It seems that we are bombarded day after day with talk of trade wars, tariffs and counter-tariffs.
Just today, April retail and industrial production numbers came out in China and in the USA. To say the least, the numbers were uninspiring at best.
In the USA retail sales for April contracted 0.2%. Much of the weakness was in auto sales because taking the auto numbers out there was a .1% gain in April. Electronics and building materials also fell. US industrial production, which has been stagnant all year, was not expected to grow in April either. It still surprised on the downside contracting 0.5%. That is the largest monthly drop since May of 2018.
Durable consumer goods dropped 0.8%. What caught my eye, however, was production decreased for business equipment, construction supplies and business supplies. This appears to confirm that 500,000 less people are actually working today than were at the beginning of 2019 even though we have “full employment”. What a joke that is! The only reason production wasn’t hurt worse was an increase in defense and space equipment materials.
This is a clear sign to me that as the consumer is drowning in debt the actual economy is slowing considerably but the headline numbers are being propped up (along with a lot of other things) by those who can “print” money and create faux demand- like in defense purchases and space equipment. We regular people aren’t buying that stuff!
Another sign of a slowing economy is electrical usage. The output of utilities fell 3.5% in April. Natural gas and electric utilities both saw declines.
It appears to me that those having to earn their money as opposed to being able to conjure it up out of nowhere are finding it harder and harder to maintain the lifestyles that they have become accustomed to because of the inflation caused by those who CAN get something for nothing- at least for now.
In China, the data is similar. Even though it appears that China is still growing nicely with retail sales growing 7.2% that is a far cry from the 8.7% growth in March. As a matter of fact, Zerohedge reported that it is the lowest growth rate since 2003.
Industrial production growth was 6.2% as opposed to an estimate of 6.5%. While the USA would kill for these numbers, they were a big disappointment in China.
While looking at these numbers we may conclude that the trade wars are impacting global trade and to some extent that would likely be true. I would point out that the IMF has a chart that shows global trade has been collapsing for quite some time. According to BMO’s Ian Lyngern exports to the world and advanced economies are at levels last seen in 2009 and exports to Europe are near those lows also.
I saw another chart the other day that showed the central bank balance sheets and the stock indexes overlaid. It is amazing how they line up. It appears that all of the “growth” in the markets are tied to rising debt. Not only would someone question how sustainable that is in the long run but it appears that many cracks are showing up right now. Central banks “print” money to pay interest on existing debt, retire maturing debt and purchase other debt. Many are also “printing” money and buying stocks outright. Companies are issuing massive amounts of new debt to buy back their shares. In doing so they are not adding any productive capacity, hiring more employees or in any way enhancing the company long term. As a matter of fact it has become a tool for short-term stock levitation that may lead to the demise of many iconic companies because of excess debt and an inability to service that debt in a deflationary environment.
All of these signs are surely not missed by the central banks themselves or their masters at the largest banks. This is why I believe the World Gold Council announced (as I have been reporting) that central banks are buying gold at the fastest pace in 6 years and in historical amounts.
It has also been reported that Deutsche Bank, JP Morgan, Goldman Sachs, HSBC, etc. have been loading up on the money of kings in the past few years also. If all is so wonderful why are they doing this?
If the fact that we are near a point where many are questioning our (USA) ability to repay our hundreds of trillions in promises made was not enough we see many of our “allies” abandoning us.
Turkey is buying the S400 system from Russia (best air defense system in the world) despite our threats against Turkey for doing so. Spain, Germany and the Netherlands have suspended military operations in Iraq fearing that the USA and Iran may be preparing for a major conflict. One reason may be our military buildup and rhetoric and the Iran Revolutionary guard commander saying according to Reuters newswire “We are on the cusp of a full scale confrontation with the enemy”. It appears that these countries are taking that threat seriously and don’t want to get dragged in.
It is also telling that our “intelligence” in the region is being actively questioned by many of our own allies. Hopefully, cooler heads will prevail and a full scale confrontation can be avoided. $200.00 per barrel oil would put a serious hurting on our already over-extended economy. Of course, it would give those in charge a great excuse for why the economy collapsed rather than we “printed” too much money, lived way beyond our means, racked up far too much debt to even service let alone ever pay off and allowed a VERY few to get exceedingly wealthy at the expense of the many with our actions.
It appears to me that this trade deal talk is an elaborate scheme to keep our eyes glued on so that we don’t see the obvious signs that our economy and the global economy, barring some sort of a miracle, is on a downward trajectory that we rarely see. It is not uncommon for individual countries to have problems but to see the whole developed world slowing down at the same time is a sobering and troubling sign that all is NOT well.
Of course, all assets rose from 2003-2007 and all collapsed together in 2008. Virtually all economies, regardless of whether it was all debt-based or not, all grew together in the past 10 years or so. It now appears that as the bills are coming due for the debt-based party and all economies are falling together also.
I can’t stress enough how important it is to think outside the box at this time. It is time to realize that our “markets” are nothing but debt-based illusions at this time and that reality may be knocking at the door. Reality will likely mean a return to prices that make more sense. It likely means that artificially propped up prices fall to reflect reality and prices artificially suppressed rise to reflect a real supply/demand price rather than an artificially managed price.
The moves could be truly historic. The way you are positioned will likely determine whether the unraveling of this current fiat system is a blessing or a curse for your portfolio.