Menu Close

This Is the End of the Cycle

This is a syndicated repost published with the permission of oftwominds-Charles Hugh Smith. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

Both new households and new businesses are in secular decline. Goosing the stock market and GDP doesn’t change this reality.
Everyone wants every cycle of expansion to last forever, but alas every cycle ends. The growth cycle that began in 2009 is finally coming to an end. The signs are everywhere, notwithstanding the torrid 3.2% GDP growth for the first quarter of 2019 (which as others have noted, is less than meets the eye.)
Gross Domestic Product (GDP) is the standard measure of expansion, but it is an imperfect metric. GDP can still notch gains while the majority of the economy is stagnating and assets are losing value.
Better guides to expansion than GDP are sales volumes, prices, profits, wage increases and sustained rises in new enterprises and households. All of these measures of expansion are stagnant, indicating that monetary and fiscal stimulus are no longer moving the needle.
Corporate profits are higher as a result of accounting gimmicks, not soaring sales or expanding gross profit margins. Stocks are being pushed higher by the old trick of lowering earnings estimates so that corporations can “beat by penny.”
In many once-hot real estate markets, sales are slowing while prices continued edging higher but at much slower rates than in the past. This is classic late-cycle activity: sales are declining as the pool of buyers has been drained while price increases have become marginal.
Global sales of pricey mobile phones and vehicles have slowed, indicating the exhaustion of the cycle is global. Again, this is classic late-cycle activity: trends that powered the narrative of “strong growth everywhere” are fading, despite attempts to hype some blip as a sign that strong growth is about to start up again.
New households and enterprises drive expansion. New households buy homes, furniture, home improvements, appliances and so on, while new businesses buy equipment, hire workers and sign on professional services such as accounting, insurance, etc.
Both new households and new businesses are in secular decline. Goosing the stock market and GDP doesn’t change this reality.
Prices are reaching unaffordable levels across the board: homes and rents in big cities are unaffordable, fine dining is unaffordable, property taxes are unaffordable, construction is unaffordable, autos and trucks are mostly unaffordable, fast food is increasingly unaffordable, college tuition is beyond-unaffordable, healthcare and healthcare insurance are insanely unaffordable– the list includes the vast majority of the costs of living. (Cheap TVs are getting a bit cheaper. Yea for low inflation!)
Rising prices are also classic late-cycle signs. To make a buck, everyone has to raise prices and cut what they can, and rising prices impacts sales.
As for the stock market: a blow-off top based on the misplaced confidence that strong growth is starting up again is also classic late-cycle action. The first doubts triggered the decline from October to December, and the sharp rebound this year once the Federal Reserve signaled “we’ll do whatever it takes” is very typical of the late-cycle topping process: price sags as doubts emerge about the aging expansion, then notches a nominal new high to assuage everyone that the long-in-tooth Bull is starting another multi-year expansion.

Those being paid to hype “the Bull market and the expansion will never end” narrative are experts at turning late-cycle blips into evidence that the cycle has plenty of room to run, but the more prudent observers are looking at the preponderance of evidence.

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print, $13.08 audiobook): Read the first section for free in PDF format.

My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is a ridiculously affordable $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF)

My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format.

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com. New benefit for subscribers/patrons: a monthly Q&A where I respond to your questions/topics.

Join the conversation and have a little fun at Capitalstool.com. If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

RSS
Follow by Email
LinkedIn
Share

Discover more from The Wall Street Examiner

Subscribe now to keep reading and get access to the full archive.

Continue reading