The CRASH nobody sees coming! – The huge disconnect between Wall-Street & Main-Street

Turn on your TV and tune into any business news station out there and all you hear is how Great the Economy is and how many jobs have been created.  Take a Walk down Main-Street and talk to some local business owners and all you hear is how the past 5 months have been their worse months in company history.

So where is the HUGE Disconnect from the Smart People on Wall-Street and the Main-Street Small business owner?

6 months ago we had the perfect setup for an economic disaster and for some reason no one is reporting on these events. It is Coming!

  1. Obamacare Killed Tax Refund Season –  Billions of dollars were taken out of the economy when many people who normally get tax refunds didn’t get refunds this year because they were penalized because they didn’t have health insurance.  These dollars usually are spent right back into the economy and were not.  in 2015 this “Tax Season” lasted for around 2 months, in 2016 it was only a short 3 week period and the money dried up.  Many businesses bulk up in inventory and marketing in anticipation to capture these tax refund dollars.  When the sales dropped off a cliff they were left with overstock, lost sales, and debt.  So these businesses then start cutting wages, jobs and expenses, which in turn starts to hurt other businesses they do business with. Then the Trickle down effect starts.
  2. Very slowly, the Finance companies started to tighten lending standards.  After the Tax Season, Lenders really tightened their belts and became very picky on who they were lending to.  Over the past 5 years, if you had a heartbeat you could get an Auto Loan, or a Home Loan or a Personal Loan.  When these lenders started tightening several things happened.  Sales at businesses across the country started slowing down and margins started shrinking.  Businesses would rather take a reduced price sale than no sale at all.  All these price reductions started a competition between businesses and margins starting getting smaller and smaller.
  3. Banks stopped lending out federal money.  Banks are getting money from the Federal Reserve at 0% which is supposed to motivate the banks to lend, however; the banks were taking the cash and sticking it in their vaults and not lending.  Do the banks know something we don’t?  Do they foresee the collapse coming and know the need to conserve cash?  By the banks holding cash in vaults, businesses and individuals can not borrow to spend in the economy.  Growth starts to slow down and businesses reduce across the board.
  4. Credit Cards companies have been quietly going through a Nationwide look-back.  This is the exact same thing the credit card companies did during the hosing market crash of 2008.  The Credit card companies stop all balance transfer requests, and stop all credit limit increases.  Then they look at each and every card out there and start automatically reducing credit limit increases.   Do the Credit card companies know something?  They do this when a large economic downturn happens to reduce their losses and exposure.  Joe Blow loses his job, the first thing he does is max out his credit card, by reducing his credit limit before he loses his job the credit card companies have reduced their loss exposure.
  5. The Presidential Election – This year is probably one of the most controversial presidential elections ever.  There are so many unknowns and possible outcomes no one knows how to plan for the future.  When you have such a wide spread view of ideas and agendas businesses and individuals stop spending, investing and fear grows.  This has a detrimental impact on the economy and costs the economy billions of dollars.
  6. Bankruptcies – Many large lenders have quietly gone bankrupt behind the scenes.  These lending companies were loaning out money to Subprime customers and the default rate is on the rise.  Remember I said Main-street is struggling to stay alive so they are cutting jobs and reducing costs.  These Joe Blows are losing their jobs and defaulting on their loans at an alarming rate.  The subprime lenders built a model of loaning more new loans, to offset the loans that default.  But remember, they tightened their belts so they are not getting enough new business to offset the default rate which ultimately ends in bankruptcy.  I hate to compare it to a Ponzi Scheme but wow what similarities I see!  in addition, these subprime lenders have another hurdle that is trickling huge problems into the economy.  When the subprime lender repos a car, they take the car to auction.  Remember, in most cases the lenders loaned more than the real value of the car so again they know they are going to take a huge loss at auction.  Big Problem, there are so many repos these subprime lenders are collapsing the auto wholesale market.  Remember, they tightened lending, so car dealers are selling less, so they are buying less at the auctions.  This creates a huge Glut of inventory so Supply is far greater than demand prices collapse.  This collapse then trickles back to the dealers again by reducing margins.  When Auto Wholesale prices decrease so do retail prices, dealers then go into price wars, liquidation sales and take shorter deals on cars just to make a sale.  It is a perfect storm that is playing out as I write this article.
  7. Small Business owners all over have reported sales decreases in the past 5 months.  No one seems to be able to answer the question why or what is causing this slowdown.  Once the crash happens, it will be clear as day.  When the smoke clears there will be trillions of dollars lost in the economy and many great business causalities not from the business owner making a mistake or miscalculation, but consider them a victim of the Economy.

I report nobody sees this coming, however; all indicators show Wall-Street and financial companies see it and are not reporting it.  Both are behind the scenes preparing their bunkers for the fallout while the average Joe becomes a causality.

 

 

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