Doug Noland’s Credit Bubble Bulletin is a good source of both information and informed commentary on the global credit bubble, and SLL has posted his work before. Here’s his current take on the US economy, from creditbubblebulletin.blogspot.com:
Friday headlines from Bloomberg: “Retail Sales Rise Most in a Year, Marking U.S. Consumer Comeback” and “Consumers Turn Out to Be U.S. Growth Lifeline After All.” Ironically, U.S. retail stocks (SPDR S&P Retail ETF) were slammed 4.3% this week, trading back to almost three-month lows. Poor earnings were the culprit. Macy’s sank 15% on Wednesday’s earnings disappointment. Kohl’s missed, along with Nordstrom and JC Penney.
It may be subtle, yet it’s turning pervasive. Support for the burst global Bubble thesis mounts by the week. With stated U.S. unemployment at 5.0% and consumer confidence at this point still in decent shape, spending has enjoyed somewhat of a tailwind. Yet the overall U.S. economy has begun to succumb to a general Credit slowdown. Despite the bounce in crude, the energy sector bust continues to gather momentum. The tech and biotech Bubbles have peaked. Cracks have quickly surfaced in fintech. There are as well indications that some overheated real estate markets across the country have cooled. Whether it is from China or Latin America or Europe, the rush of “hot money” into U.S. real estate and securities markets has slowed meaningfully.
The downshift of Credit and “hot money” flows helps explain the weakness in both corporate profits and the overall stock market. And with stock prices down year-on-year, Household Net Worth has essentially stagnated. Keep in mind that Net Worth inflated from $56.5 TN at year-end 2008 to a record $86.8 TN to close 2015. Over the past six years, Net Worth increased on average $4.76 TN annually. Such extraordinary inflation in household perceived wealth supported spending – which bolstered profits and underpinned asset price inflation and more spending.
Let’s return to the irony of positive retail sales data and negative earnings. It’s easy to forget that retail had been significantly overbuilt during the mortgage finance Bubble period. The worst of the shakeout was avoided as Household Net Worth inflated from 384% (2008) to a record 484% (2015) of GDP. And while inflating perceived wealth boosted spending, zero rates and manic financing markets ensured another period of booming retail investment (bricks and mortar and Internet). There has, as well, been extraordinary growth in various services, certainly including telecommunications.
In contemporaneous analysis during the Great Depression, there was insightful debate questioning whether over-investment or malinvestment was primarily to blame. Well, there was ample blame to go around. And this gets back to the fundamental thesis: It was not insufficient “money” after the 1929 Crash that was the root cause of economic depression, but instead gross excess of “money,” Credit and speculation throughout the Roaring Twenties.
A few weeks back I noted analysis that placed excess global energy sector investment at several Trillion. And this week from Bloomberg (Agnieszka De Sousa), “Glencore CEO Lists Mining’s Mistakes After $1 Trillion Spree.” And how many Trillions of over/malinvestment were spent in recent years throughout “tech,” biotech, pharmaceuticals and retail? Tens of Trillions throughout China and Asia more generally? Downward price pressures globally on so many things should be no mystery. And by now it should be indisputable that so-called “deflationary pressures” are not the consequence of insufficient “money.”
To continue reading: Ominous Portents
