This is What an Economic Cliff Dive Looks Like…

Cliff4

If you don’t own gold, you know neither history nor economics.   Ray Dalio, Bridgewater Associates, in a speech to the Council on Foreign Relations

 

Submitted by Fund Manager Dave Kranzler, Investment Research Dynamics:

No Virginia, there is no economic recovery and the narrative that bad weather caused weak economic activity last winter and this winter is nothing but a fantastic fairytale of epic proportions. Once again, Wall Street reached into your pocket and took as much money as they can. You’ll understand when the stock markets catches “down” to reality and you are stuck with that home you wanted to flip…

I got an interesting email from a source of mine in Denver last night:

Dave, Something is definitely wrong. I’m getting reports in from all my automotive sources that point to a grinding halt…Suppliers say business is WAY off and sporadic feast or famine is everywhere. Repair shop businesses are closing at accelerating rates and behind on debt. The car lots are jammed with unsold cars. Sixth Ave [auto sales] usually sells a ton of used cars at its BIG SPRING SALE and they only sold 10. TEN! They specially move hundreds of cars to it. And almost no sales this year.

All I get delivering anything to me now is retired people and guys with college degrees. And so on and so on…I have also noticed a big increase in, how do I put it, not so desirable people [he means people standing at street corners by stop-lights on busy avenues asking for money. I’m seeing a huge influx of that myself lately all around Denver and even in the suburbs].

Also, I am turning away FAR more customers now that bought cars they can’t afford. Repair shop lots are filling up with cars customers can’t pickup. My wife works for the County and their requests for [financial] aid has doubled and budgets from the State have been cut.

Dave,  something is definitely wrong. I can feel it.

That was a spooky email to get last night.  Especially since my friend’s observations are being confirmed by most non-Government-generated economic reports.  Here’s come graphs:

Cliff1

Cliff4

This first graph shows wholesaler sales to retailers.  You can see there was literal cliff dive in demand from retailers starting in late 2014.  This is about the time that both John Embry and I independently felt like something was collapsing behind “the scenes.”  It’s also when the financial media seriously ramped up its anti-gold disinformation campaign.

If consumers aren’t buying non-discretionary items and are cutting back on necessities, you get a chart that looks like the top graph.

The second graph shows the ratio of wholesale inventories to sales.  It can spike up due to overproduction, declining demand or both.  Either way, it means that orders from wholesalers to manufacturers are going to do a cliff-dive and it means factory production and manufacturing are going to grind to a halt.

Then yesterday Kansas City Southern released a quarterly earnings report in which it essentially said  – in so many words – that it’s business activity slowed significantly in Q1 –LINK.  The Company pulled its forward guidance on sales, net income and volume for the rest of 2015.   This just in:  I don’t think I’ve ever seen a company completely pull its guidance – i.e. they always put some spin on their forecast even if its a reduction in guidance.

Combine this with a haunting article by Wolf Richter:  Why The Heck Is The Trucking Business Slowing Down?

The ground transportation business activity level functions as an accurate barometer of domestic economic activity much in the same way that the Baltic Dry Index functions as a barometer of international economic activity.  Both indicators are telling us that there is a very serious economic contraction taking place right now, globally AND IN THE U.S.

This morning we just found out that industrial production declined for the 5th month in a row – LINK – and the Empire State manufacturing index missed its Wall St forecast for the 4th month in a row, tech spending (capex) plunged and the index for future business conditions fell off a cliff – LINK.

The economy is starting to collapse.  QE4 is not a question of “if” but of “how soon?”

That’s why the S&P 500 went irrationally nuts to the upside yesterday despite the disastrous economic reports this week, including and especially the ominous warning from KC Southern.

As I will show in upcoming articles, the housing market sales volume is being driven by a flood of newly minted “flippers.”  They are going to get stuck holding a big bag of homes they can’t sell, just like in 2007-2008.  The unfortunate souls who bought their dream home to actually live in with a 0-3% down payment Government-subsidized mortgage will soon find out that they overpaid by an unfathomable amount.   I’m not the only predicting Armageddon in real estate.  A well-known housing market consultant recently issued a report in which he said he is now convinced this next downleg in the housing market will be worse than when the big bubble burst (more on that later).

It’s going to start to get ugly out here.  I’m sure the Fed/Government will make sure the stock market continues upward at frenetic pace.  But, then again, the same thing happened in Weimar Germany before the mark collapsed…