Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Reasons to Buy Pre-Owned Luxury Car from a Certified Dealer - 22nd July 19
Stock Market Increasing Technical Weakness - 22nd July 19
What Could The Next Gold Rally Look Like? - 22nd July 19
Stock Markets Setting Up For A Volatility Explosion – Are You Ready? - 22nd July 19
Anatomy of an Impulse Move in Gold and Silver Precious Metals - 22nd July 19
What you Really need to Know about the Stock Market - 22nd July 19
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

The Recession And Bear Market Of 2016, In Two Charts

Economics / Recession 2016 Dec 21, 2015 - 06:43 AM GMT

By: John_Rubino

Economics

Good friend Michael Pollaro just sent a couple of charts that show the US economy heading for a brick wall. The first illustrates what happens when business sales (the green line) turn negative. In the previous two boom/bust cycles, when sales started falling the economy either tipped into recession shortly thereafter or (it was discovered in retrospect) was already well into a contraction.


Meanwhile, junk bond yields (the blue line) start rising before recession hits and then spike during the contraction, as falling sales hit the weakest borrowers hardest, causing a wave of defaults.

Now compare the previous two busts with today (far right of the chart). Business sales turned negative a year ago and are now heading south fast. Junk yields bottomed in 2014 and are now spiking. If history is a reliable guide, the US is either in recession right now or will be within a quarter or two.

There is one difference, however. Heading into both previous financial crises short-term interest rates (represented here by the Fed Funds rate, red line) were above 5%, giving the central bank some leeway to cut rates and thus stimulate new borrowing. But not this time. Instead, short-term rates are zero or thereabouts and the Fed has just begun a tightening cycle.

Effective Fed Funds Rate

Here's Michael's take:

What is Junk Market getting that broad equities are not getting? Oh yeah, the economy is decelerating and liquidity is being withdrawn. Basic starting point, learned from my years on the sell side: Pay attention to the junk market. That market is much smarter than the equity market.

The next chart shows the causal relationship between new factory orders and industrial production, i.e., the amount of real things being produced by US factories. Again, the trend is ominous.

National ISM Manufacturing New Orders versus Industrial production 1994-2015

Michael's take:

Note how ISM New Orders leads Industrial Production. Janet, where is your accelerating economy? I guess in Health Care spending. My insurance is going up 10% next year and is up 50% in 6 years. How about yours?

No doubt autos are big part of what strength there is in manufacturing. I wonder what the recent rise in rates/credit spreads might do to auto sales, then auto production? Car Max numbers may be a hint?

Speaking of CarMax:

CarMax Hits the Brakes as Used-Car Comps and Net Income Fall

(Fool.com) - The auto industry has been extremely strong in 2015, with automakers on track to report what might be their best sales figures ever. Yet coming into its fiscal third-quarter report on Friday, used-car specialist CarMax (NYSE:KMX) hadn't enjoyed the same success that the new-car segment had shown, and investors wondered whether the company's high-growth phase might have come to an end. Even as new-car nationwide chain counterpart AutoNation (NYSE:AN) struggles with its own internal challenges, CarMax's latest quarterly report showed signs of further deterioration in the used-car arena. Let's look more closely at how CarMax did this quarter and what some shareholders are more nervous than ever about the company's future prospects.

CarMax's fiscal third-quarter results were unexpectedly weak. Revenue climbed just 4.1% to $3.54 billion, falling well short of the 6% growth rate that most investors had hoped to see from the car seller. Net income fell 1.4% to $128.2 million, and that worked out to earnings of $0.63 per share, which was a nickel per share less than the consensus forecast among investors.

Looking more closely at what CarMax said about the quarter, the slowdown that investors have seen during much of 2015 continued. Total used-vehicle unit sales rose 3.2%, but comparable-store sales of used cars fell 0.8%. The company said that store traffic fell during the quarter, and the improvement in getting sales completed wasn't enough to offset that downward pressure. Wholesale vehicle sales were up nearly 7%, but CarMax's tiny new-car sales figures fell by more than a fifth, showing some of the same trends that AutoNation has seen pop up recently.

Car sales have joined student loans as the credit bubble du jure and will have to pop soon, given the combination of record-high sales and soaring subprime lending. If used car sales are an indicator of the future of new car sales, then overall business sales and industrial production will "surprise analysts" by plunging next year.

By John Rubino

dollarcollapse.com

Copyright 2015 © John Rubino - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules