Economic Outlook

This Week on the Frontiers: Grow Slow

FrontiersSub-Saharan Africa’s economies are experiencing the lowest growth rate in six years, the IMF announced in its twice-yearly Regional Economic Outlook report. The fund said sub-Saharan Africa’s economies would collectively grow by 3.75% this year. That represents a dramatic downward revision of two percentage points from the IMF’s prediction a year ago, Matina Stevis writes, and 0.75 percentage points off its most recent prediction in April.

“The strong growth momentum evident in the region in recent years has dissipated in quite a few cases,” the IMF said.

According to the IMF’s World Economic Outlook database, just four of the world’s 10 fastest-growing economies are in Africa now…. CLICK HERE for the complete article

Retail Earnings Disaster Points To Gathering Storm

The big retail chains are generally seen as pretty good barometers of the health of “the consumer.” And since — in today’s late-cycle debt-binge pseudo-capitalism — the consumer drives the economy, the numbers coming out of the aforementioned retail chains should be cause for worry.

ddddFirst Macy’s got our attention: 

Macy’s Sounds a Holiday Alarm, and Retailers Brace for Heavy Discounting

(New York Times) – When Macy’s, a store closely associated with Christmas, says there is trouble brewing ahead of the holidays, it is enough to send the world of shopping into a tailspin.

The retailer of “Miracle on 34th Street” warned Wednesday that its stores were awash with merchandise after a sluggish fall season and that slow business would force it to go all-out on discounts during the holidays.

Macy’s shares plunged about 14 percent, dragging other retailers down, too. The Hudson’s Bay Company, which owns Saks Fifth Avenue and Lord & Taylor, fell 5 percent, as did Kohl’s. Burlington Stores fell about 7 percent.

Then Nordstrom dropped a bomb: 

Nordstrom Shares Plunge After Profit Misses Analysts’ Estimates

(Bloomberg) – Nordstrom Inc. fell as much as 18 percent in late trading after missing third-quarter earnings estimates and cutting its annual forecast, renewing concerns about a slump in the department-store industry.

Profit amounted to 42 cents in the period ended Oct. 31, Nordstrom said in a statement Thursday. Excluding some items, the earnings came to 57 cents. Analysts had projected 72 cents on average, according to data compiled by Bloomberg.

Nordstrom follows Macy’s Inc. in reporting disappointing results, underscoring a broader slowdown for department stores. Consumers are spending less of their money on apparel and accessories, shifting their budgets to cars, homes and technology. Retailers and clothing suppliers also have struggled to pare down excess inventories, forcing them to rely more on discounts.

The results reflected “softer sales trends that were generally consistent across channels and merchandise categories,” the Seattle-based company said in the statement.

The shares tumbled as much as $11.68 to $51.79 in late trading in New York. Nordstrom already had slid 20 percent this year through the close of regular trading Thursday.

Nordstrom’s same-store sales, a closely watched benchmark, grew just 0.9 percent last quarter. Analysts had estimated 3.6 percent, according to Consensus Metrix. The Rack outlet business, a former bright spot for the business, also suffered in the period. Same-store sales fell 2.2 percent, missing a projection for growth of 2.8 percent.

What does this mean?

First, e-commerce is winning big. Amazon, eBay, et al, have eaten the big-box stores for lunch, and they’re still hungry. Unless Telsa puts a car showroom in every mall in America, most malls are toast — and mall REITS are great short sale candidates.

Second, the surge in sub-prime auto loans wasn’t such a good thing after all, since those car mortgage payments apparently leave less disposable income for whatever it is people buy at Macy’s and Nordstrom. 

Third, the overall economy is, as analysts in the sound money community keep saying, way weaker than the headline government numbers imply. The jobs being created obviously don’t pay enough to enable workers to buy new clothes — even though as a waiter/bartender you do have to look sharp. 

Last but not least, stock prices are more vulnerable than you might think from watching CNBC. US equities fell hard today, and though there were several explanations being tossed around (China’s slowdown, a Fed rate increase), the implications of a “profit recession” should be in the mix. Because really, has there ever been a bull market when corporate earnings were falling?

 

About John Rubino and dollarcollapse.com

DollarCollapse.com is managed by John Rubino, co-author, with GoldMoney’s James Turk, of The Money Bubble (DollarCollapse Press, 2014) and The Collapse of the Dollar and How to Profit From It (Doubleday, 2007), and author of Clean Money: Picking Winners in the Green-Tech Boom (Wiley, 2008), How to Profit from the Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall Street (Morrow, 1998). After earning a Finance MBA from New York University, he spent the 1980s on Wall Street, as a Eurodollar trader, equity analyst and junk bond analyst. During the 1990s he was a featured columnist with TheStreet.com and a frequent contributor to Individual Investor, Online Investor, and Consumers Digest, among many other publications. He currently writes for CFA Magazine.

U.S. Manufacturing Renaissance Turns Into the Dark Ages

imagesgovernment’s abrogation of free markets will ultimately result in economic chaos and entropy”

The October ISM Manufacturing Index, which has been the official barometer of the U.S. manufacturing sector since 1915, came in with a reading of just 50.1. This was a level barely above contraction.

Of the 18 industries surveyed in the Regional Manufacturing Survey, 9 reported contraction in October: Apparel, Leather & Allied Products; Primary Metals; Petroleum & Coal Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Machinery; Transportation Equipment; Wood Products; and Computer & Electronic Products.

And of those nine, the energy market in particular continues to struggle the most. One respondent in the survey noted that the effects of the weak energy market are now beginning to bleed into other areas of the economy.

In addition to this, new orders for U.S. factory goods fell for a second straight month in September (down 1.0 %), confirming the manufacturing sector in the United States has hit a downturn.

In fact, U.S. Factory Orders have fallen y/y for 11 of last 14 months; and contracted 6.9% from September 2014.

Furthermore, demand for durable goods fell 1.2% in September. While demand for nondurable goods (goods not expected to last more than three years) fell 0.8%. This placed downward pressure on GDP in the third quarter leading to a disappointing 1.5% GDP read.

During the month of September a majority of U.S. states reported jobs losses, as the slowing manufacturing sector weighed on hiring nationwide. The Labor Department recently announced that 27 states actually lost jobs in the month of September. This data belies the rosy headline 271k Non-Farm Payroll report issued for October: the Labor Department releases individual state data a month in arrears.

All this bad news begs the question: Has the former manufacturing renaissance in the United States officially turned back into the dark ages?

Despite huge kudo’s to U.S. ingenuity for inventing fracking and horizontal drilling technologies, the viability of these innovations depends upon an unsustainable bubble in oil prices. Fracking is just one example of the misallocation of capital resulting from faulty price signals derived from central banks’ manipulation of interest rates.

And this failure isn’t limited to our Federal Reserve. The strategies of central banks all over the world are failing.

The European Central Bank (ECB) to date is in the process of printing the equivalent of $67 billion of QE per month, which will amount to a total of $1.2 trillion (or 1.1 trillion euros) by the time Mario Draghi’s QE program is slated to end in September of 2016.

Considering all that money printing, GDP in the Eurozone was only a pathetic 1.2% larger than it was one year ago.

Once the star of the Eurozone economy, German GDP disappointed with growth of 0.4% for the second quarter instead of the 0.5% analysts had been expecting. The French figure came in completely flat, and Italy, the Eurozone’s third biggest economy, disappointed with growth of just 0.2%.

Italy’s unemployment rate managed to fall in September, even as its economy lost 36,000 jobs during the month. This was because more discouraged workers left the workforce. As growth rates languish and economies lose jobs, central banks are getting more and more desperate to create inflation, which they like to masquerade as growth.

But the sad truth is even with over a trillion Euros of new money printed, governments are not achieving the inflation rates or the GDP growth they are seeking.

And then we have Japan, which is entering into its 3rd recession since the Abenomics regime took control in December 2012. The BOJ has been in the habit of printing 80 trillion yen each year! Nevertheless, its debt to GDP is approaching 250%, and annual deficits are 8% of GDP. The BOJ is buying 90% of all the bonds issued, and now owns half of all Japanese ETF’s. Yet despite a train wreck of an economy and horrific debt and deficits the 10 year note-in a perfect example of a central bank distorting economic reality–is yielding just 0.3%.

Our Fed has printed $3.5 trillion since 2008 in a futile attempt to get the economy growing at what Keynesians term as escape velocity. However, we have only averaged 2% growth since 2010. And growth in 2015 appears to be even less, as the all-important manufacturing sector is now clearly in a recession, and is now dragging down the rest of the economy.

Today, there are no free markets left anywhere in the world. Governments control the fixed income, equity and real estate sectors; and therefore control the entire economy. And what was once touted as the U.S. manufacturing renaissance has morphed into another example of how government’s abrogation of free markets will ultimately result in economic chaos and entropy.


Michael Pento produces the weekly podcast “The Mid-week Reality Check”, is the President and Founder of Pento Portfolio Strategies and Author of the book “The Coming Bond Market Collapse.”

Is U.S. Heading for Recession?

nnU.S. corporate sales and profits decreased in the third quarter for the first time since 2009. Is a recession possible in the U.S.? How could it affect the gold market?

Profits and revenues are falling in tandem for the first time in six years. Sales are expected to fall 4 percent, while earnings per share are likely to decline 2.8 percent (so far, only a third of S&P 500 companies have reported). Although some companies – mainly in services and car sales – remain robust, the industrial environment’s (railroad, energy producers, manufacturers) looks really recessionary. Yesterday’s report on durable goods orders leaves no doubt. New orders for manufactured durable goods decreased in September 1.2 percent. On an annual basis, durable goods orders are down for the eighth consecutive month. Following this report, the GDPNow forecast for GDP growth in the third quarter decreased to 0.8 percent from 0.9 percent.

What is a bit surprising, given the low oil prices, is that transportation also looks weaker than expected, due to the manufacturers’ lower demand for cargo. So much for the idea that the industrial slowdown will not spill over to the whole economy. And, just as a reminder, transportation is typically a leading indicator.

The question is whether the U.S. economy as a whole is heading into recession. Well, we have a sales recession, earnings recessionindustrial recession and transportation recession. What’s left? Such developments typically accompany economic recessions. However, there were exceptions when the economy expanded but corporate profits temporarily fell, mainly due to a strong U.S. dollar or low oil prices – factors present also today.

To sum up, there is no recession yet, but investors should not ignore the growing weakness in the manufacturing sector. Financial markets often underestimate an economic slowdown, but it does not mean that the real economy is not on the threshold of a bust. A full-blown recession would certainly be positive for the gold market, especially that the Fed is running out of ammunition. So far, negative economic forces are too limited to qualify as an official NBER recession, but they may be enough for postponing or even abandoning the idea of monetary tightening. This is good news for the gold market.

If you enjoyed the above analysis, we invite you to check out our other services. We focus on the fundamental analysis in our monthly Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

U.S. Government Agencies Signal Recession Ahead!

When no-name naysayers opine that the U.S. economy is headed into a tailspin, you can often take it with a grain of salt.

But when credible, well-established government agencies issue hard data denoting a big decline, it’s a different story: You’ve got to stand up and pay attention. 

Consider, for example …

The U.S. Energy Information Administration (EIA), the primary government authority on energy stats and analysis. Unlike the Fed, it doesn’t make policy or even advocate policy. By law, no outside officer or employee of the government can interfere with what it concludes or says. 

And right now, the EIA says that …

Just from August to September, U.S. crude oil production declined by 120,000 barrels per day …

Production will continue to fall sharply next year, leading to a mass reduction in spending on major oil projects. And, to add insult to injury … 

U.S. crude oil supplies have just surged by 7.6 million barrels — over four times more than analysts expected. 

Meanwhile, executives attending the Oil and Money conference in London warn that a “dramatic decline” in U.S. production is now under way. 

Their reasons: world oil prices are now too low to support U.S. shale oil output, the biggest addition to world production over the last decade. And it’s not just because of declining oil prices; bank financing for shale projects has completely dried up. 

OPEC agrees. The oil cartel sees U.S. production falling for the first time since 2008. The big problem is that, despite falling global demand, OPEC members are not cutting production like they might have in prior years. They’re too afraid to lose an even bigger share of the global oil market. So they continue to pump oil at a feverish pace. 

Impact on global oil prices: No relief from record lows. 

Impact on U.S. economy: Huge. The U.S. energy industry is the third-largest industry in the U.S. And that excludes thousands of companies and millions of jobs that feed off the industry indirectly.

image1The U.S. Department of Agriculture (USDA), unlike the EIA, is responsible for policy. But ever since Abraham Lincoln started the agency during the U.S. Civil War, millions of players in the commodity markets have relied on its forecasts. 

And right now, U.S. agriculture is getting killed.

Take wheat, for example, one of the America’s largest field crops: According to the USDA’s Economic Research Service, U.S. wheat exports have plunged to their lowest level in guess how many years! 

Not 10. Not 20. But 44! 

That’s right. The last time our wheat exports were this bad was back in 1971. 

The big problem: The United States is virtually priced out of the global wheat trade, with still more hits to U.S. exports on the way.

But this disaster is not limited to just one crop or even one industry. Indeed, the primary driver of the slump is a powerful force that cuts across all U.S. exports — the sharp rise in the U.S. dollar. 

According to Bob Young, chief economist at the American Farm Bureau Federation, it’s the dollar’s 20% surge since July 2014 that’s mostly responsible for gutting U.S. farmers. (And, as I’ll illustrate in a moment, it’s also the same force that’s now killing U.S. corporate earnings.) 

Meanwhile, foreign farmers and agribusinesses can jump in and sell their commodities at dramatic discounts, thanks to an unprecedented plunge in their local currencies. 

Brazilians, for example — leading producers of soybeans, coffee and sugar — can greatly undercut U.S. farmers thanks to a 42% crash in the Brazilian real since last July. Russian farmers? They’re leveraging a currency collapse of 48%. 

All “contained” to energy and commodities? No way! Anyone who buys that argument is in for a rude awakening, as I’ll show you next. 

image2At the U.S. Department of Labor, the headline unemployment number is not quite as reliable as stats from the other government agencies I just told you about. 

But when all their underlying data is terrible … when big companies are announcing layoffs … and when every other source paints the same dark picture, then you know the trouble is for real.

That’s the situation we have now: In the last couple of months, nervous U.S. employers — small, big and huge — have suddenly started to pull back sharply on their hiring. 

A key reason: On top of the U.S. dollar being strong, foreign markets have plunged, foreign buyers have shunned U.S. goods, and U.S. manufacturers are getting stuck with big unsold inventories.

But if you think the latest job numbers were bad, brace yourself for what’s coming next. Giant U.S. companies like Caterpillar, Hershey, Wal-Mart, ConAgra Foods, Chesapeake Energy and others have already announced big layoffs, and these layoffs are not yet included in the Labor Department’s unemployment stats. 

There was one bright spot in the September job numbers, though: Most retail companies continued hiring. 

The problem: Now the retail sector is also starting to take a hit … 

image3We know because of the latest release last week from the U.S. Department of Commerce. 

Now, if sheer size (not gross inefficiencies) were the criteria, this executive-branch agency would probably be the most impressive data source in the world. 

But regardless of their problems, there’s little argument that U.S. retail sales are now getting hammered. 

September sales were only half of what economists were expecting …

The gains previously reported for August were totally bogus — completely wiped out by revisions, and …

Only six out of 13 categories showed sales gains, a sign that the malaise is starting to spread throughout the economy. 

The clincher to all this is corporate earnings: Despite a few notable exceptions here and there (like Citigroup last Thursday), one major company after another is releasing shockers that cast a shadow over the entire U.S. economy. 

chart1The prime example is retail supergiant Wal-Mart. 

It’s the world’s largest retailer. It has nearly half of a trillion dollars in annual revenues. And it’s gotten crushed. 

Last Wednesday, it announced its profits will miss forecasts by a country mile: Rather than rising 4% in the next fiscal year as analysts expected, they’re going to fall 12%. 

Result: Wal-Mart shares suffered their biggest one-day crash in 17 years. 

But they’re not alone. CNBC highlights how even industry sectors thought to be immune are now falling by the wayside — luxury goods (example — Burberry), health care (e.g. HCA), consumer discretionary (Garmin), and many more. 

Look. Even assuming stock analysts have learned their lesson and are finally getting it right, S&P 500 profits are now forecast to drop at the fastest rate since the tail end of the Great Recession.

What does all this mean? I don’t think I have to connect the dots for you. It’s obviously not good for stock investors … unless you can do four things: 

  1. Use stock market rallies — like the one we’ve seen in recent days — to help build a huge, oversized cash position. 
     
  2. Wait patiently for most stock prices to take another big hit, whether now or later. 
     
  3. Then, consider strictly extreme top-notch quality.
     
  4. And hedge your risk with investments that are designed to go up when stocks go down. 

Good luck and God bless!

Martin 

 

About Martin Weiss

Dr. Weiss founded Weiss Research in 1971 and has dedicated the past 40 years to helping millions of average investors find truly safe havens and investments. He is president of Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies. And he is the chairman of the Sound Dollar Committee, originally founded by his father in 1959 to help President Dwight D. Eisenhower balance the federal budget. His last three books have all been New York Times Bestsellers and his most recent title is The Ultimate Money Guide for Bubbles, Busts, Recesssion and Depression.

The investment strategy and opinions expressed in this article are those of the author and do not necessarily reflect those of any other editor at Weiss Research or the company as a whole.

And What’s Going to Happen at the Next Recession? by Larry Kummer • October 12, 2015

UnknownThe Government’s strange and awesome powers

Six years after the recession ended, we are due for another recession. Many experts say that the government is “out of bullets” to fight the next severe downturn. That’s quite false because 2008 marked the start of a new era in which our leaders manage the business cycles using strange and awesome tools. We’ll learn the long-term effects of these tools slowly, probably only decades later.

“All is not lost until you run out of airspeed, altitude, and ideas.” — Pilots’ wisdom.

….continue reading this interesting article HERE – Money Talks Editor