Just can’t put it more plainly than that. All of the key economic indicators are pointing in the wrong direction, and there is no Lone Ranger to ride to the rescue. October will be scary.
I am in the habit of posting news releases to my Facebook profile page as a reminder and a review tool for my monthly investment newsletter. The picture looks something like this:
Housing is in the toilet and the plumbing is broken. Warren Buffett estimates that we need one million new home starts per month to get the U.S. economy moving. We have been bumping along at around 300,000 for the better part of three years. In the summer of 2008, when it was already clear that the bubble had popped, we still managed to build a million units per month. 2006- 1.7 million units- that’s how far we have fallen. With that decline, we lost not only the construction jobs, but also the work for painters, carpet-layers, furniture makers, etc., ad nauseum.
Personal income declined in August- even more so relative to inflation. Jobless claims remain well above 400,000 on a four-week moving average. Now CEOs are losing confidence in a global recovery and are paring back hiring plans. We can expect companies to report solid earnings in October- but with gloomy expectations. Never a good thing for asset prices.
Overseas, Eurozone inflation is running hot at 3%, the Euro is weakening, and they are committed to more money printing. All bad news for our multi-nationals. China’s PMI (manufacturing index) is officially in contraction territory, while input and output costs have risen. So much for that little engine pulling the global train.
There is a cliche that the market ‘climbs a wall of worry’. That only works when markets hit bottom, and things can only get better from there. Unfortunately, we are nowhere near that place. If anything, there is still a bit of optimism priced into the market. Nor is it likely that ‘flight to safety’ assets get by unscathed. Another cliche: ‘When people can’t sell what they want- they sell what they can.’
Sometimes, return OF capital, is more important than return ON capital. This is one of those times.
Follow Phillip Larrea on Facebook and Twitter @ PhillipLarrea. For more info on a newsletter subscription email: firstname.lastname@example.org