"Degenerate, Decline and Distort"
The twisted transformation of the entire US economy.
by Bill Bonner
Poitou, France - "Today, we look at distortions. The US economy is transitioning… It is affirming its true nature…or distorting it. So, let’s not mis-identify it! From a 40-year period of falling interest rates and rising asset prices…it is moving towards a long trend of higher real rates and lower real asset prices. Most likely, the movements will be distorted by inflation. That is, the dollar is likely to decline in value making the actual price trends hard to decipher.
Meanwhile, the great Empire rolls over…degenerates, declines…the genders get reassigned…the pronouns get scrambled…reparations get passed out, or not…the deficits get bigger…the military/industrial/spook/university/pharmaceutical/medical/press complex gets richer…the middle class gets poorer…the new digital money replaces the dollar…the Federal government goes broke…and everything is distorted by fraudulent money and the fake media.
But wait. It’s not that simple!
Familiar Faces: Yesterday, Guy came over to dig a trench for an electric line for a new apartment. Guy is short, muscular, tanned….in his 60s. We’ve known him for at least a quarter of a century. But we’ve never seen him without a small cigar in his mouth, and a slightly rakish look. “Bonjour Monsieur Bonner,” he greets us rather formally. But when he sees Elizabeth, his arms stretch out. He embraces her and addresses her with the informal “tu” …which is shockingly familiar. “You are looking as ‘mignone’ as ever,” he continues, giving her a big hug. “You might need to get your eyes checked,” Elizabeth was quick with a comeback.
There is always a bit of flirtiness in the French countryside. Perhaps it comes from the lack of other distractions. Without it, men feel less manly…and women are disappointed. As for today’s non-binary farmhands…we don’t know how they roll.
We’re here in France, where we’ve spent summers for the last 28 years. According to the news, southern Europe is roasting. But here in central France, we wear sweaters…it is rainy and chilly. Do reports on the summer weather patterns give us an accurate view? Or do they distort it?
We live in a house that was once the center of a large farm. The house is big…if a bit ramshackle. And there are many outbuildings which once served as barns, workshops, storage areas, living quarters, stables, poultry houses, a bakery – everything that a farm community needed in the 19th century. Once there were many families living here. Now, there is only ours. And our family too has been greatly reduced. The children have grown up. They have their own careers and children of their own. And our aged relatives – who lived with us – have passed away.
A Confusing Mix of Signals: Often, Elizabeth and your editor are here alone, dwarfed by history, the house itself and its surroundings. But in the summer, we encourage the whole family to come for a vacation. And so they come – children…grandchildren…nieces…nephews… …friends, friends of friends, and sometimes a few people of uncertain provenance.
Suddenly, the place comes alive again…as it was when our own children were little. And then we discover – we don’t have enough space for them all! So, your editor has set to work, turning a loft in one of the empty outbuildings into an apartment. (More about that anon.) And that too brings back the old days with all the noise and commotion of renovating an old house. Guy with his digger…an electrician with his drill…hammers hammering…plumbers a-plumbing…and six geese a-laying. What a delight!
But enough idle chit-chat. Returning to the US economy…We are looking at distortions – a confusing mix of signals. Some tell us that the old economy, 1982-2022, is still doing its thing. Others tell us that things have changed. And some don’t know what they are trying to say.
A Teary Ending: Let’s begin by looking at those that signal trouble ahead. Charlie Bilello: "The Leading Economic Index declined in June for the 15th month in a row, the longest down streak since 2007-08. The Conference Board is still forecasting a recession from Q3 2023 to Q1 2024 driven by “elevated prices, tighter monetary policy, harder-to-get credit, and reduced government spending.”
US Industrial Production is already seeing a slowdown, with growth turning negative on a YoY basis for the first time since February 2021. Additionally, US Retail Sales have increased less than 1% over the last year and after adjusting for inflation have declined on a YoY basis for 8 consecutive months.
Yahoo Finance reports that…"John Hussman is doubling down on his dire outlook for US stocks…" "Stretched equity valuations suggest that the S&P 500 index would be required to plunge by as much as 64% for the market to return to more balanced conditions, according to the asset-bubble expert who successfully predicted the stock routs of 2000 and 2008.
"The present combination of historically rich valuations, unfavorable internals, and extreme overextension places our market return/risk estimates – near term, intermediate, full-cycle, and even 10-12 year, at the most negative extremes we define," Hussman, president of the Hussman Investment Trust, wrote in a note. "Yes, this is a bubble in my view. Yes, I believe it will end in tears."
On the other hand, yesterday brought another (barely) positive day of trading. If there is trouble ahead, the stock market doesn’t see it. But then, it never does. It is always at the very peak of the day that the evening begins. Overall, the stock market indexes are now within whiskers of setting new highs – in nominal terms. We add that “in nominal terms” because already, the price structure has changed a lot over the last couple of years, distorting real values.
Let us say Americans pay about 10% more for consumer goods and services than they did in 2021, when the Dow boomed over 36,000. In order to stay even with inflation, the Dow would have to go to nearly 40,000. That’s what inflation does to everything; it distorts the truth. It lies. It prevaricates. Investors think they are making money; but they are just keeping up with rising prices.
Unmolested Spiders: Our guess is that, whatever else is happening, the distortions will become more complex in the years ahead. The much-anticipated recession hasn’t happened yet. But keep your shirts on – please! Most likely, the economy will begin to walk backwards later this year. And most likely, the recession will be deeper…and longer…than people expect. This will prompt the Fed to begin cutting rates rather than raising them. And that is where the real distortions and confusions begin. Prices will go up. But real values will fall. It will be hard to know if you’re getting richer or poorer…coming or going.
Probably the most confusing market right now is the US housing market. While other prices are coming down, housing prices are still near an all-time high. But the number of houses for sale has plummeted. People are “locked in” to low interest mortgages. They can’t sell; they can’t move…or they will have to face much bigger down payments and much higher mortgage payments. This has left the pool of houses available for sale nearly 30% smaller than in 2019. More amazing, there are approximately 50 million more people in the US than there were in January 2000. But there are 37% fewer existing houses for sale today than there were then.
Think of the poor real estate agents! Nothing to sell. No one to sell it to. Spiders build their webs in real estate office doorways, confident that they will be unmolested. Banks close their accounts for lack of activity. The volume of sales declined again last year, the 22nd year in a row of falling sales. Relative to the population, never have so few houses been available to buyers. But don’t worry. You can’t afford one anyway. Considering today’s 7% mortgage rates, never have they been so expensive."
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