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The Rapidly Dying U.S. Economy, And The Fed’s “Hobson’s Choice”

IMG Auteur
Published : March 07th, 2017
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Category : Opinions and Analysis

Early Monday, it’s “one of those days” when I’m scanning my notes for a single, defining “PM bullish, everything-else-bearish” topic to focus on – but am having trouble doing so, given just their sheer breadth, and depth.  Fortunately, I found the best way to present this weekend’s data – via the time tested “East to West” format.  That said, I want to start with a domestic topic before moving to the East, given just how important it is, and how impactful it will be on our lives.  And no, it’s not the alleged wire-tapping of the Trump Tower by the Obama Administration; which, if it’s true, confirms everything I believe of how rapidly America is turning into an Orwellian nightmare.  Not to mention, why it’s imperative that you remove assets from “the system” as soon as possible, before “the Administration” deems them more suitable in “their” hands than yours.

No, the topic I’m referring to is the Retail Apocalypse enveloping the entire world – but particularly the U.S., due to the massive amount of heavily leveraged, historically overbuilt “brick and mortar” infrastructure being rendered obsolete by, and all things internet.  Which, as discussed in January 2015’s “direst prediction of all,” is violently deflationary – just like the historic oversupply of residential real estate, student loans, auto loans and inventories; farms, crude oil, and essentially everything the “economic Molotov Cocktail” of money printing, financial deregulation, predatory lending, and overvalued stock and bond markets history’s largest, most destructive fiat Ponzi scheme has created.  Not to mention, the “kerosene” added to said cocktail by unprecedented debt levels that continue to parabolically rise – to be “turbo-charged” if the lowest interest rates in history slightly rise.  And oh yeah, the ugliest demographic trends in the history of the Western world – which I assure you, will make the below, hideous graph look “tame” in comparison to what’s coming.

Following last week’s hideous Target results; and news that Wal-Mart is considering across-the-board price cuts – accompanied by a broad, profit-strangling squeeze on the world’s largest retail supply chain; we learned that the great and mighty Costco is, aside from membership fees, operating at a loss.  In other words, for all the millions of people buying billions of goods and services there, Costco’s core operations are barely different than the “change bank” of Saturday Night Live lore – which makes up for its lack of profits with “volume.”  Which made me consider just how terrible the U.S. retail business has become, now that nearly everything is bought online – due to convenience; a lack of sales tax; the increasingly prevalent “free shipping” that tens of thousands of retailers now offer to compete with Amazon – and its new “death blow” product, Amazon Prime; and generally speaking, the increased level of understanding, and comfort, of buying online, as the process has become exponentially more streamlined over the past two decades.

In fact, the traditional retail business – as evidenced by the massive losses; store closures; and soon-to-be permanent layoffs that will decimate the Fed’s “full employment” propaganda – has been so eviscerated by Amazon, it’s at that point that they are literally giving customers the “shirts off their backs” to maintain market share, to the point that “customer retention” is becoming costlier than simply letting customers go; like a relationship that in hindsight, you wish had never occurred.  Even Costco is doing it, with a “return policy” that literally enables you to return anything, at any time, for any reason – with no questions asked.

And it’s not just Amazon that’s killing retail – particularly as in many aspects, it considers its retail business a “loss leader”; but the entire online industry, which pits essentially everyone owning anything, new or used, against everyone else.  Let alone, eBay and Craig’s List; which have caused millions of people – particularly in today’s generationally weak economy, in which fewer people than ever have savings; high-paying jobs; and generally speaking, the ability to make ends meet – to literally “shop” in the want ads, for everything from cars, to furniture, to ordinary household items.  Frankly, even “Retail Apocalypse” understates the severity of the upcoming collapse of America’s largest industry – and only source of job “growth” since the 2008 crisis.  Let alone, the accompanying Commercial Real Estate collapse, given that on average, (heavily leveraged) CRE properties are valued 27% higher than the 2007 peak!

Well, that took more time than I thought – so in the interest of brevity, I’m going to skip deep discussions of some of the “rest of the world’s” problems.  Like, for instance, this weekend’s Chinese government policy meetings, in which the lowest-ever GDP “growth” was forecast; due to, in the words of Premier Li Keqiang, “grave and complicated challenges, posed by a great many problems and interwoven risks and dangers, both at home and abroad.”  Not to mention, the exploding chaos surrounding the potentially “BrExit times 100” French elections in April and May; the collapse of the world’s LOL, “fastest growing economy,” in post-cash ban India; and heightened geopolitical tensions with everyone from Iran, to North Korea and Russia.

Instead, I want to re-focus on the economic carnage here, which is about to become an all-out conflagration, now that what promises to be an historic debt ceiling crisis is upon us, a mere nine days from now.  Heck, even David Stockman’s estimate that the Treasury could conjure enough cash to get it through mid-summer (before the government is forced to shut down) may prove “optimistic,” given how rapidly, and dramatically, cash balances have been depleted since the inauguration.

We have the Fed’s insane, suicidal gambit to raise rates now, despite collapsing economic data that is about to get a lot worse.  Heck, even the Fed’s own 1Q GDP forecast (goosed accounting irrespective) was reduced last week to 1.8%, with Bank of America reducing theirs all the way to 1.3%.  This, despite the strongest “soft” economic data in decades; which consequently, has caused the greatest disparity between real hard, and fake soft data in U.S. history.  I mean, why worry about plunging motorist miles driven, gasoline demand, industrial production, real wages, pension funding status, and retail sales; and surging loan delinquencies and household, corporate, and government debt; when “consumer confidence” is so high?  Not to mention, when the PPT is “dead ringer-ing” the “Dow Jones Propaganda Average” to new highs each day (LOL, Zero Hedge finally got around to discussing last week, what I have been writing of for five years); and the soon-to-collapse gold Cartel is naked shorting tens of millions of non-existent ounces.

All of this lunacy, in the “most un-fun bubble ever,” because the “market” expects Trump to be an economic messiah.  Who, with the stroke of a pen, will “print” prosperity by borrowing, spending, and deregulating.  As if all other President’s haven’t attempted the same; many, in much larger amounts; and none, starting from such a weak economic and financial position.  Not to mention, the fact that – as I vehemently espoused one week after Trump was elected – NONE of such plans are politically or economically viable; let alone, now that the Trump Administration is at war with Congress, the world, and the “deep state.”  Or, for that matter, enough to alter America’s crash course with financial oblivion, even if his proposals are miraculously enacted.  To that end, what part of the benchmark 10-year Treasury yield failing to breach the “economic line in the sand” of 2.5% am I missing, considering how “strong” the nation’s third longest “economic expansion” is?  Or, for that matter, that despite 95% of a Fed rate hike this week (to LOL, the pitiful, barely positive 0.75%), trading “odds” on the yield curve have it flattening post rate-hike; i.e, assuming a recession!

In other words, the U.S. economy is rapidly dying, forcing the Fed to make a “Hobson’s Choice” of either raising rates to maintain “credibility” – in the process, destroying both the economy and America’s competitive position; whilst risking an all-out war with the President, and a potentially cataclysmic Yuan devaluation; or doing nothing, and watching “markets” start to discount the hyperinflation that must inevitably arrive.  Not to mention, the end of the gold Cartel, now that the physical market is finally starting to, in Andrew Maguire’s words, “wag the tail” of the paper dog.  Thus, the time is now to make potentially life-changing financial choices, so let’s hope you make good ones.

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Andrew Hoffman was a buy-side and sell-side analyst in the United States (including six years as an II-ranked oilfield service analyst at Salomon Smith Barney), but since 2002 his focus has been entirely in the metals markets, principally gold and silver. He recently worked as a consultant to junior mining companies, head of Corporate Development, and VP of Investor Relations for different mining ventures, and is now the Director of Marketing for Miles Franklin, a U.S.-based bullion dealer.
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