Slow Motion Economic Disaster is Accelerating

If You Blame Covid-19, Then Think Again

At some point, one has to believe the data over the hyperbole, and the facts over the fiction. But the people in the United States have become so short-sighted, it’s likely they could not even tell you where they were last New Year’s Eve without looking at their phone for visual proof, such as photos.

Ask those same people what happened to the “greatest US economy ever” and the responses will center around Covid-19-a flu that has garnered a response like none we have ever seen in the US.

But I believe that they are wrong, and that Covid-19 is being used by both parties for what they will believe can be political gain.

Third Quarter of 2019 the Slowdown Began In Earnest

The data is out there and you can prove it to yourself if you are willing to look. I have.

The third quarter of 2019 saw profit growth per share for the companies in the Value Line financial subscription fall from 15.35% growth to 1.81%. That sort of slowdown is very detrimental to the political party holding the White House.

In fact, it is slow enough that I would state that it would be likely that Trump lose in 2020 unless there was some incredible reversal, which would have needed some sort of catalyst to occur.

Fourth Quarter of 2019 Prior to Covid-19

Comparing the fourth quarter of 2019’s performance to 2018 is even more horrific. Profit growth per share was down 11.98%. Companies, on a per share basis, earned 11.98% less than the previous year.

Yet Trump and Company still kept touting this economy as the greatest ever. On the other hand, i knew we were heading towards a recession. Companies do not just stop generating profits.

Along Comes Covid-19

For years I have demonstrated how easy it is to forecast the Presidential Race by looking at just one number. Corporate profits after taxes has accurately predicted the outcome for every election since 1972 except for one-1976. And that was the only time we had a non-elected incumbent running for re-election.

I have to believe that both parties are aware of how important the economy is during an election year to the outcome. The question one must ask oneself is that if knowing the economic slowdown that was happening, would either party try to exploit Covid-19?

For instance, would the Republican Party use Covid-19 as cover for an economy that was clearly heading towards a recession, so that the flu would be blamed for the economy’s dismal performance?

And would the Democratic Party use Covid-19 to guarantee that the US Economy was in the tank as voters decide who to elect in November?

The Answer is Clearly Yes

Trump had nothing to lose by blaming Covid-19 for the sudden demise of the US economy. Without it, I feel he was certainly heading towards a loss even if Biden would ultimately be the nominee.

And the Democrats would have no problem sacrificing the economy in order to keep it in the tank as long as possible in order to help their agenda.

But rather than just stick to the economic impact, the Democrats have embraced the greatest move towards socialism we have ever witnessed. And this action just might move the mind of the voters off of the economic issues and onto the socialism issue, which will likely be their undoing.

Make No Mistake The Economy Was Grinding to A Halt

The economic damage that has happened and continues to happen all around us cannot be underestimated. It s worsening day by day.

Covid-19 will be the scapegoat for all of it. Yet I will know that Covid-19 was a political flu.

And the United States will NEVER be the same again.

Was it worth it?

2019: Recessionary Forces Cannot Be Halted

Economic Forces Affect Political Outcomes

If you look inside the economy, you need to find more than an empty box.

The US economy and how it functions is truly a mystery to most people. For the most part it operates on faith. For politicians, it is generally taken as a granted. When a recession strikes, no one knows what to do.

The outcome of the 2020 Presidential Election hangs in the balance, and Trump has less than 6 quarters to turn things around in a major way, or Trump will become the first one-term President since G.W. Bush.

The data is very clear. It extends all the way back to the mid 70’s, and it is a nearly perfect indicator for POTUS election results. I have written about it in the past. It has not changed. The rules are rather simple.

Corporate Profits Are Mediocre

If corporate profits as reported by the Bureau of Economic Analysis is growing by more than 6%(more or less) year over year, then the party in the White House will maintain control of the White House. The ONLY exception to this rule since 1972 is Gerald Ford, who was tossed out of office because of the overwhelming desire for any new direction after Nixon’s resignation.

With that in mind, those that hold the office of POTUS really need focus on a few major things, and one of the most major things is the real health of the underlying economy.

Why corporate profits? It’s simple. Businesses are in business to grow profit. No one should run a business just to maintain the status quo. But watching the major financial networks, it becomes clear most are clueless to this rather simple truth.

But the networks seem to focus on two numbers that mask the real performance. The first is the top line, or sales. The second is the earnings per share. Both of these numbers are not worth 1/2 of what weighting analysts have placed upon them. Why?

Sales can rise 30% per year. But if you are not bringing any more profit per sale to the bottom line you are just working hard for the same result.

Earnings Per Share are Misleading

Earnings per share can make a company with less profit look like they are doing better than they really are. If a company’s earnings fall 3% but they buy back 4% of their shares, then EPS will rise. And this false signal seems to be embraced by analysts at every turn.

So why are we headed into a recession? The costs of doing business are rising, and rising fast, and there is nothing that will put the brakes on those pressures.

Back in 2008, the same two factors that accelerated the market collapse are happening once again. What are those two factors? Interest rates rising and minimum wages rising.

There has never been more debt being held by Americans in our history. And the increases in rates, while they appear small, relatively speaking, are really huge in their outcomes. Rates rising from 2 to 2.5% for instance, results in a whopping 25% increase in your interest costs. That is not insignificant.

Minimum Wages are Rising

Minimum wages increases, however, are going to push the economy over the edge. These increases are not happening because businesses have chosen to pay employees more because A) they are more productive and B) it is what is needed to get employees on the job. Rather it is the worst of reasons: despite the economic realities, government mandates it.

Minimum wage is increasing in 21 states in 2019. And by much more than what the rate of increase was back in 2008.

https://www.businessinsider.com/minimum-wage-2019-state-map-2018-12

Politicians never seem to grasp the affect of these mandatory wage increases on businesses. And the businesses they most affect are the ones with some of the lowest profit margins in our economy: Restaurants and retail sales are going to have to raise their prices to maintain their profit margins, despite the workers only producing as much as they did last year.

That of course, will inject just a bit more inflationary pressure into our economic system, which will put even more pressure on the Federal Reserve Bank to raise rates even higher.

We know that the the odds of states and cities reversing course and lowering the minimum wage is near zero. As for the Federal Reserve, who knows what they will do? They do not even know what they are doing today.

If Trump (and most of the Republicans) want to maintain the White House in 2020, they better start acting now to lower the costs of doing business in the United States. They will need to see this recession end quickly, which means it needs to be officially acknowledged sooner rather than later.

The summer of 2019 needs to be the low part for the economy. The rate of Federal Debt growth must be slowed dramatically. Home grown energy needs to be deregulated. The constant increase in local sales taxes fuel taxes and property taxes need to be reversed just to have a shot at this objective.

Otherwise, this recession is going to be far worse than 2008. And no business is actually prepared for that.

And I’d wager good money that no state or local governments are either.

We’ve Pulled As Much Future Demand Forward as We Could

Perhaps more than anyone else, we’ve been keen on documenting the rise of subprime auto loans.

Over the course of the last 12 months, data from Experian clearly shows that underwriting standards are falling in the industry as competition for a shrinking pool of eligible borrowers heats up.

  • Average loan term for new cars is now 67 months — a record.
  • Average loan term for used cars is now 62 months — a record.
  • Loans with terms from 74 to 84 months made up 30%  of all new vehicle financing — a record.
  • Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
  • The average amount financed for a new vehicle was $28,711 — a record.
  • The average payment for new vehicles was $488 — a record.
  • The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.”

Source:http://www.zerohedge.com/news/2016-01-14/subprime-auto-canary-deutsche-bank-probes-employees-exaggerating-abs-demand

As you read through the data above, it becomes obvious that something has gone seriously wrong in our economy.  To finance a vehicle for 84 months-7 years to you and I, is phenomenal.  The rate of depreciation on the vehicle nearly guarantees that the owner will be underwater for nearly the entire length of the loan. Continue reading