The Fed is Wrong (Again): America is Slowing Down (Fast?)
Our consistent view has been that the US economy is not in a recovery, that the Fed will not be able to increase short term rates and that Fed credibility would suffer, opening the way for a lower dollar, a higher gold price and a deep correction in the stock market. Let's look at some new evidence.
The Fed is Wrong (Again): America is Slowing Down (Fast?)
Our consistent view has been that the US economy is not in a recovery, that the Fed will not be able to increase short term rates and that Fed credibility would suffer, opening the way for a lower dollar, a higher gold price and a deep correction in the stock market. Let's look at some new evidence.
The following chart shows that the the broad US stock market and Total Business Sales generally moved in parallel until 2011 when they began to go in opposite directions. This divergence must resolve. Do you think we are suddenly going to see a surge in business sales? Or is the stock market headed for a more significant drop?
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Total Business Sales tumbled 0.6% month over month in August (the latest month and the biggest drop since January). Note that Total Business Sales is the combination of sales to end consumers and other businesses.
Meanwhile, business inventories, unlike sales, have not been falling. We continue to think that the rising inventory-to-sales ratio is signaling a recession in the making.
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The inventory-to-sales squeeze is across the board as the following table demonstrates:
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Retail Sales data for September released today show a pathetic 0.1% gain month over month. Sales dropped in 7 of 13 major categories including:
- Electronics and appliance stores -0.2%
- Building Materials and Supplies -0.3%
- Food and beverage -0.3%
- Gasoline stations -3.2%
- General merchandise stores -0.1%
- Miscellaneous store retailers -1.3%
- Online -0.2%
Consumers may be saving on gasoline but they aren't spending the savings elsewhere. This data was well below expectations.
Finally, we note that there is trouble brewing in the housing market, which has been the primary target for Fed stimulus and perhaps the best hope for the economic bulls. Wells, Fargo is the largest and best of the residential real estate lenders in America and their latest data on the total value of mortgage applications is hardly encouraging.
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