Looming, The Mother of All Crashes: 2017

So many struggles in the US, are we in for an Economic Crisis worse than the Housing Market Crash of 2008?  Can this Crisis be averted or is it too late?

  • Retail Store Armageddon
  • Commercial Real-Estate Crash Coming
  • Restaurant Recession
  • Auto Crash Happening now
  • A whole new House Bubble
  • 8 years of the Fed Printing money
  • Bank Profits are up again
  • Tax Returns Dry up
  • $1.2 Trillion in Student Loan Debt
  • Main Street Businesses Sales are declining
  • Huge Disconnect from the Media to Reality concerning the Economy
  • Looking Nuclear War
  • Technology Consolidation of Jobs
  • Lack of Capital loans to businesses
  • Increase in Bankruptcies and Defaults
  • M&A Slowdown
  • World Trade Wars & Currency Manipulation
  • Ever Increasing US Debt
  • PE Ratios on the stocks at all times highs again
  • Slowest Economic growth in history in the past 8 years
  • House bubble never fixed just a big Band-Aid
  • More Uncertainty
  • Manufacturing Index Just fell

 

  • Retail Store Armageddon
    • In the past 18 months 6,537 retail stores have closed their doors due to declining sales and profits and more store closings are happening every day. Retail has long been a contributor of high paying jobs in our economy.  The loss of these great stores will add to the Unemployment and have a great trickledown effect.  Those who lost their jobs have crippling debt, high mortgages and will ultimately default on much of their debt.  Not only will they default on their debts, they will be taking out millions of dollars in spending.  This loss of spending also has a trickledown effect on businesses, businesses sales decline, they lay off more people and this cycle continues over and over taking more and more money out of the economy.
    • Let’s just take a look at the store closings here: Sears/Kmart 573 Stores, Office Depot 700 Stores, Family Christian 240 stores, HH Greg 270 stores, The Limited 250 Stores, American Apparel 110 Stores, Macys 68 stores, Rue 21 400 stores, JC Penney 138 Stores, Abercrombie & Fitch 60 Stores, Guess 60 Stores, Crocs 160 Stores, Wetseal 171 Stores, BCBG 120 Stores, Payless Shoes 400 Stores, Gamestop 150 Stores, RadioShack 552 Stores, Staples 70 Stores, CVS 70 Stores, Gander Mountain 32 Stores, Foot Locker 151 Stores, Chico’s 120 Stores, The Children’s Outlet 200 Stores, Ann Taylor 117 Stores, Whole Foods 9 Stores, Sports Authority 140 Stores, Walmart 269 Stores, Ralph Lauren 50 Stores, Areopostale 154 Stores, Bebe 170 Stores, Guess 60 Stores, G111 Apparel 60 Stores, Gordmans 106 Stores, Jos. A Banks 244 Stores, Nordstrom 2 Stores, Kohls 18 Stores, Gap 65 Stores.
  • Commercial Real-Estate Crash Coming
    • The major loss of all the retail stores closing is leaving empty commercial buildings all across the country. Strip mall after Strip mall with vacancies and “For Lease” signs can be seen everywhere.  In the great Housing Crash of 2008, the commercial real estate survived, this time it will not.  Prices are falling on rents because the Supply far outweighs the demand.  In the past Decade, we Overbuilt the commercial market, and not only do we have an oversupply, technology is taking away demand with more and more sales moving online and away from conventional retail.
  • Restaurant Recession 
    • If you just look at the Earnings reports of the Restaurant Industry, you will see a trend, Sales are declining and profits are horrible. Higher cost of goods (no one has spoken this bad word in years but Inflation is sneaking in slowly), and sales declines are showing that the American consumer is not confident, are broke, are just not spending or maybe all three!  If sales are down, companies start closing stores and laying off people, once again taking millions of spending out of the economy and increasing the likelihood of defaults on debt.
  • The Auto Crash
    • This Crash started in Spring of 2016 and is continuing, and we are only in the beginning stages of this crash. More fallout will follow as this market is collapsing with so much similarity to the housing market crash of 2008 it is scary. In 2008 Auto Dealers were banking on record Tax Refund sales, yet due to new laws the Tax Money Dried up and the season turned out to be bad. The problem with a bad tax season is far greater than the average person can realize.  Auto dealers bulk up and invest in inventory in the winter with anticipation they will sell them at Tax Time.  If the inventory does not sell, it costs the Dealerships most of their profits due to Floor plan charges, interest on loans and the ever depreciation of the market value of the asset (the inventory).  So the Dealerships help fulfil their own crisis, they start dumping their unsold inventory back into the wholesale marketplace causing more supply than demand and the wholesale prices start to collapse driving down the prices of autos, eroding profits.  All the while this is happening, very quietly, the US experienced a huge financial collapse that was kept pretty quiet.  The Subprime Lending market collapsed and leader after lender went bankrupt in the summer of 2016.  Again, this subprime market reeked of the housing market crash.  Lenders and dealers were engaging in fraud at an all-time high.  Doctoring paperwork and creating false documents to get loans that should have never been made.  While these Subprime lenders were going under, Auto Loan defaults started to rocket higher, fueling the fire for more and more failures and adding even move inventory back into the marketplace driving prices down.  At the same time all of this is going on, A Record number of leases on autos are starting to expire flooding the auto market again with more inventory.  While this is going on New Car Sales reached an all-time high, so the new auto manufactures ramped up production on new autos.  This last quarter we now see it in the numbers, Dealers normally have 60 days of inventory, they are now at 90 days.  This all telling story shows, prices are again going to collapse more as these dealers start dumping their overstock of inventory.  The manufacturers are going to be forced to slow down manufacturing which will add to layoffs and more money taken out of the economy.  Several dealers have stated to watch out, this April has been their worse sales month in the history of their business.
  • A New Housing Bubble
    • Put your house on the market today and you will probably get multiple offers and at a higher offer than your asking price. Do you want to buy a house?  No problem, No Money down loans on a home are back and bigger than ever.   Can you only afford a $100,000 but want a $250,000, no problem lenders are doing loans up to 50% of your income again, even though it should be 20%-30%.  Did you Uncle, Aunt, Brother, Sister just get their real-estate license?  Usually in a real-estate bubble, everyone jumps on board and everyone is a real-estate agent.  Yes, you heard it right, we are in a house bubble again, how long with it last?  It’s really hard to say, but If you have a house to sell, now is the time.
  • Fed Loves Printing Money
    • When we experienced the Housing market crash of 2008, instead of letting the market correct itself, the government stepped in and kept us on life support for almost a decade now. This move is going to haunt us for many years to come.  We have printed money like no other time, which ultimately devalues our currency.  This devaluation will also lead to inflation and give us less of an advantage when trading with the world.  A weaker currency leads to a weaker economy and we have not felt the repercussions of all this cheap money yet.  This has also falsely inflated our stock market.  Our stock market is currently based more on speculation and future projections which are out of line.  As more and more companies start reporting earnings, the huge disconnect will be seen.
  • Bank Profits are UP
    • Banks profits are up, so this must mean the economy is improving, right? Wrong, this is once again Smoke and Mirrors.  If you digest the banks’ earnings, most of their earnings came from trading.  From trading?  Yup, once again, the banks are buying and selling paper, pure speculation and not real profits.  I would rather see the banks report higher earnings for lending to businesses and consumers, but that’s not what they are doing.  This buying and selling of paper is exactly what was going on in the housing market crash.  Let’s bundle all our junk and sell it to the other bank, the other bank then re-bundles it and sells it to another bank.  This activity can only go on for so long before the house of cards once again crumbles.  I would keep a close watch on the banks right now, I fear we are just repeating history.
  • Tax Refunds have dried up
    • Starting in 2016, many people didn’t receive tax refunds like they used to due to new government rules and regulations. Millions of dollars has been taken out of the economy and many businesses build their business models around the tax refund season.  This directly impacts auto dealers, retailers and finance companies.  It has continued into 2017 and was just recently acknowledged by Footlocker on their earnings conference call.   FootLockers’ first quarter sales in 2017 missed by double digits.  This is only one company whose sales have been affected from Tax Refund Season disruption, I believe that in the future we will learn just how much this disruption took out of the American economy in the form of spending, and that number will be much higher than anyone ever guessed.
  • $1.2 Trillion in Student Debt
    • We have two major issues looming and several economists have warned about the devastating effects this crippling debt is going to incur on our economy. Problem number one, is that students leave school owing as much as house loan.  This huge crippling debt forces the student to live at home with a parent or rent.  These students cannot find adequate jobs to afford a home and many never purchase a home.  Home ownership of the younger generation is far below that of the baby boomer generation and is quite startling.  We also have another major issue here, studies show that almost half of this $1.2 Trillion in debt are from students that didn’t complete their education.  They dropped out of school and are now not working or working very low wage jobs.  It is believed that half of this $1.2 Trillion debt is bad debt that will never be paid back.
  • Main Street Business
    • Sales are down at small businesses across the board and many are closing down from lowers sales, lower profits, stiff competition and not enough investment capital available. Many business owners are not investing back into their businesses because of uncertainty and slowing sales.  An economy needs reinvestment to grow and be healthy, and business reinvestment is at an all-time low on main street.  Main Street creates a vast majority of jobs in the US, as these businesses fail we continue to add to the unemployment.  Bank laws and regulations have become so stringent, banks can not lend to many good businesses that are thriving.  This lack of capital holds back opportunity and job creation.
  • False Media reporting
    • Turn on the TV and you will hear how good the economy is, everything is peaches and cream. Seems like such a huge disconnect from reality considering so many points above show otherwise.  It is this Euphoria that creates bubbles, when everyone is eating the same ice cream, when does the sun come out and melt it?  Every huge correction came out of nowhere and was unexpected.  We are in a world of Euphoria right now where the media says our economy is great and the best it has ever been.  What a perfect setup for a correction.
  • Looming Nuclear War  
    • So much uncertainty in the world and with looming nuclear war no one can predict the outcome or what effect it will have on world economies. The US needs strong world economies to stay healthy, if we see foreign nations economies fail it will have direct impact on our own economy.  In the world where currently our world markets are weak, uncertain and changing, we have no idea what the long-term effects will be.
  • Technology Consolidation of Jobs
    • Many low paying jobs are being replaced with technology, this will spread the income gap ever more. Entry level jobs are needed for people to learn, grow and get work experience in the business world.  Most of these jobs are students and elderly people who just need money to supplement their income.  This income is most important, as the majority of it earned is just spent right back into our economy.  With the loss of these jobs we lose so much spending back into our economy.  Technology is evolving at a rapid rate and is replacing jobs at a very rapid rate that I foresee continuing into the future.
  • Business Capital Investment
    • Years ago, we changed banking laws so drastically, many businesses that need capital to grow cannot qualify for investment. The banks hands were tied, and this has a couple of really bad effects. Have you noticed more and more Quick Business loan companies popping up everywhere lately?  They are a sort of Subprime lender businesses can turn to for much needed investment capital but they charge ridiculously high rates and short payback terms.  These loans should be made illegal and regulated more closely, they charge as much as 200% and the default rate on these loans is astronomical.  But we created this problem as a necessity of the banking laws that changed.   The banking laws are so strict a great company cannot get investment.  This lack of investment stifles growth of the company and the economy.  Maybe that’s why the banks are back to paper shuffling and making money trading, because their hands have been tied on lending to good businesses.
  • Bankruptcy Increase and Defaults are up
    • So many companies, companies that have been around for 50-80 years are all of a sudden filing bankruptcy, closing their doors and restructuring. Sales are down, delinquencies on loans are rising.  Job loss and the economic downswing we are currently going through has started to show through in defaults on Auto loans and will be showing through very soon in the housing market again.  Many people who have purchased a home within the last couple of years have overpaid and are losing their jobs.  They can no longer afford their no money mortgage and you will see a spike in defaults.
  • Mergers and Acquisitions Slow Down
    • Slowdowns in M&A is a tell-tale sign the economy is in trouble. In the last quarter, we have noticed a significant slowdown in this activity.  When we see these signs, we know problems are looming in our marketplace.
  • World Trade and Currency Manipulation
    • World trade is under attack and we are trying to make trade fairer. When the government interferes with trade only bad things happen.  I believe in Capitalism and let the markets work itself out, intervention from the movement in free markets never ends good.  What I find scarier is the possibility of currency manipulation.  Our currency is Fiat money anyways, but is a foreign country has been manipulating its currency, and it comes to light, it would crash the world economy.  Unfortunately, I do believe in particular at least two foreign countries have manipulated their currency.
  • US Debt
    • Do I even really need to talk about the ever increasing out of control us debt? This is a collapse just waiting to happen, enough said.
  • PE Ratios on the Stock Market
    • Well once again the market is becoming overpriced. From the Fed printing money, the market has been driven up to all-time highs and people are willing to pay for more and more times earnings.  They are basing this premium on future expectations, which I do not see realistic.  If my projections are correct and the economy is not as strong as everyone says it is right now, if it fails, it is going to fail big time because it is unexpected.  Also, we have so many unknowns with our government and world events that the future predictions of our economy are incorrect.  I believe the market is severely overvalued and we could see a 2000-point correction.
  • Slowest Economic Growth in History
    • “In terms of the average pace of GDP growth, this is the slowest expansion on record,” says Lakshman Achuthan, co-founder of the Economic Cycle Research Institute. The U.S. economy has only grown 2% a year since it bottomed out in June 2009. That’s far below the typical growth in rosy times of over 4% a year that the U.S. has experienced since World War II. It’s even below the rather sluggish rebound during President George W. Bush’s tenure of 2.7%.  So, with this said, how in the world can we value the stock market at all-time highs with such poor growth.  This sort of growth reminds me of the Japan Stagnant economy that has lasted for years.
  • House Band-Aid
    • The housing market crash of 2008 was never allowed to fully correct. So much intervention from the government and new rules, regulations and bailouts.  Unfortunately, since we never fully experienced a full correction there was lots of little problems left behind in the wake.  These problems have slowly grown over the years and are finally coming to light which will cause another much needed correction.
  • More Uncertainty
    • With so many unknown factors, government corruption and looming failures to come, no one can predict the future and the outcome. The views on our economy is so divided and spread apart a correction will come to get these views to meet in the middle.
  • Manufacturing Index Just Fell
    • While I was writing this article, it was just announced the Manufacturing Index just fell, The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee: “The NMI® registered 55.2 percent, which is 2.4 percentage points lower than the February reading of 57.6 percent. This represents continued growth in the non-manufacturing sector at a slower rate. The Non-Manufacturing Business Activity Index decreased to 58.9 percent, 4.7 percentage points lower than the February reading of 63.6 percent, reflecting growth for the 92nd consecutive month, at a slower rate in March. The New Orders Index registered 58.9 percent, 2.3 percentage points lower than the reading of 61.2 percent in February. The Employment Index decreased 3.6 percentage points in March to 51.6 percent from the February reading of 55.2 percent. The Prices Index decreased 4.2 percentage points from the February reading of 57.7 percent to 53.5 percent, indicating prices increased for the 12th consecutive month, at a slower rate in March. According to the NMI®, 15 non-manufacturing industries reported growth in March. The sector continues to reflect growth; however, the rate of growth has declined since last month. The majority of respondents’ comments indicate a positive outlook on business conditions and the overall economy. There were several comments about the uncertainty of future government policies on health care, trade and immigration, and the potential impact on business.” I believe this is just the beginning of this trend, Manufactures are going to cut back because consumer spending is going to decline.

There is so much uncertainty right now, we do not know how this is going to play out.  I pray there are smarter people up in the government that can help soften this blow.  But at the same time, I hope they do not intervene so much this time and let the markets naturally correct, because the US is Resilient and will come out even stronger.   I do not believe it is totally unavoidable though.  There are so many large sectors failing and consolidating, we are going to experience some pain. 

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