2nd recession is looming..

[JP Hochbaum]

Walmart has announced cutting US orders 2% due to inventory backlog.

And here is a graph of QE synced with the stock market rising, we are near the 2008 type bubble.



Then there is industrial capacity utilization:



Now I am not saying when it will happen, I don't have that type of crystal ball. But these signs are not good and I do predict this next recession will happen a bit faster if the debt ceiling is not raised.

 

[RDS]

People talk about the China bubble without looking at their own backyard.

 

[Carjosse]

All the debt ceiling is MAD between the president and Congress. It destroys the economy and congress blames the president who had no control over it in the first place, the debt ceiling is the worst idea ever.

 

[JP Hochbaum]

All the debt ceiling is MAD between the president and Congress. It destroys the economy and congress blames the president who had no control over it in the first place, the debt ceiling is the worst idea ever.

Many argue that the debt ceiling is unconstitutional:

https://www.google.com/search?q=deb...m=122&q=debt+ceiling+unconstitutional&spell=1

 

[finebead]

The current expansion will end in a recession since they always do. I don't see signs of it now. In 2000, there was a clear bubble in the stock market, Greenspan had called "irrational exuberance" in 1997. Then the dot com's started going belly up and we found out that Enron was lying about it's books and it was being covered up by it's accounting firm Arthur Anderson. More cheating came to the surface like Worldcom, Tyco and Health South, and the bubble popped. The DJIA finished down 3 years in a row for the first time since the great depression.

In 2004-2006 a huge bubble built up in housing and the money center and investment banks built a huge bubble in mortgage backed bonds that they paid the rating agencies to rate AAA and sold them around the world as "safe" investments. When the low teaser interest rates began to reset and people couldn't afford their house note, they all tried to sell their house at the same time, the market could not absorb the inventory, house prices collapsed and the junk bonds the rating agencies had rated AAA collapsed hurting many people, companies and municipalities.

I don't see a similar bubble forming anywhere. Perhaps the expansion of the FED's balance sheet. That's the only bubble I see. I don't know enough about the operation of the FED to say what that bubble will cause to happen. I think they know they can't reverse that position too quickly. There seems to be a fear that it will eventually cause higher inflation than we'd like. If the bonds they bought were sold too quickly it would drive interest rates up quickly, but they have to be smart enough not to do that (I think). Leading economic indicators are positive the last 3 months, that's good. As slow as the recovery has been, it would make sense it would not drive a big bubble anywhere. We could be in for a LONG SLOW GRINDING recovery. That's what my gut and some statistics tell me.

 

[Moot]

Walmart has announced cutting US orders 2% due to inventory backlog.

And here is a graph of QE synced with the stock market rising, we are near the 2008 type bubble.

View attachment 67154219

 

[JP Hochbaum]

“Most of the inventory increase was because of missed sales.”

Wal-Mart is already struggling to keep shelves stocked, in part because stores lack the manpower to move items to sales floors from back rooms and shipping containers in parking lots. The U.S. workforce at Wal-Mart’s namesake and Sam’s Club warehouse chains fell by about 120,000 employees in the past five years, to about 1.3 million, according to regulatory filings. In that time, the company has added more than 500 U.S. stores through July 31.

Bill Simon, chief executive officer of Wal-Mart’s U.S. division, said last month that inventory increased due to “softer than anticipated sales trends, the delay in summer weather and timing shifts in the receipt of merchandise for back-to-school and the upcoming holiday season.” ...

Wal-Mart Cutting Orders as Unsold Merchandise Piles Up - Bloomberg


What else do you have to prove another recession is looming besides Walmart's ineffiency to stock their shelves in a timely manner?

LOL, what?

 

[Moot]

LOL, what?

Unless you're trying to say the recession is looming because of QE, I think you're going to need more evidence than just a backlog in merchandise at Walmart who by their own admission didn't hire enough people to unload the merchandise and stock the shelves.

.

 

[JP Hochbaum]

Unless you're trying to say the recession is looming because of QE, I think you're going to need more evidence than just a backlog in merchandise at Walmart who by their own admission didn't hire enough people to unload the merchandise and stock the shelves.

.

Did you read just the first sentence of what I wrote?

 

[austrianecon]

While JP doesn't want to hear what I have to say.. let's examine this stupidity..

Walmart has announced cutting US orders 2% due to inventory backlog.

Wal-Mart cutting 2% due to inventory backlog is not a indicator of another "recession" because if anybody read past the headline from Bloomberg and looked at the numbers.. Wal-Mart isn't cutting 2% due to falling sales but rather what naturally happens this time of year and usually in the spring. Wal-Mart has excess inventory. It won't buy more of stuff they have sitting in a warehouse as it effects the bottom line (earnings). This is business 101.

Wal-Mart cutting US orders amid inventory backlog: report

And here is a graph of QE synced with the stock market rising, we are near the 2008 type bubble.

View attachment 67154219

Because of the FED printing money. QE should have stopped after QE 1. But we had to triple down on it for Government budget issues and politics.

Then there is industrial capacity utilization:

View attachment 67154220

The jump in 2009-2010 was due to pent up demand. Happens all the time in recessions and recoveries and so is the falling industrial capacity utilization after the pent up demand returns to normal. It's literally like this.. if you get a check for $10,000 (outside of your normal income) and you spend it all. You spend it all in one year and the following year you don't get that $10,000 check again..can you keep spending $10,000 above your normal income? Of course not, so you would return to your normal spending habits after that spending spree. The pent up demand is an outlier. It's a blimp or a mini-bubble in the scheme of things and not an indicator of what is normal. So we are returning to "normal levels" (pre-2008).

Now I am not saying when it will happen, I don't have that type of crystal ball. But these signs are not good and I do predict this next recession will happen a bit faster if the debt ceiling is not raised.

Wow, color me surprised. You are making illogical conclusions on what's going on.. and leave an open ended date. Signs are just fine, Fed isn't tapering and free money is around for all. There is a slim to zero chance of a recession while the Fed is printing money. Only way a recession happens is if the dollar collapses but I can't give a date on when that happens as I don't have a crystal ball but it's gonna happen.. :2wave:

And really? You are gonna equate the debt ceiling not being raised as the end of the western world... didn't you learn from the sequestration which didn't kill the economy as predicted.

 

[Moot]

Did you read just the first sentence of what I wrote?

I looked at your charts, too. It wasn't very compelling evidence for a recession. So what did I miss? Because the chart on Capital Utilization that I posted shows that reaching the 2008 mark has been reached before and a recession didn't immediately ensue.

 

[imagep]

The current expansion will end in a recession since they always do. I don't see signs of it now. In 2000, there was a clear bubble in the stock market, Greenspan had called "irrational exuberance" in 1997. Then the dot com's started going belly up and we found out that Enron was lying about it's books and it was being covered up by it's accounting firm Arthur Anderson. More cheating came to the surface like Worldcom, Tyco and Health South, and the bubble popped. The DJIA finished down 3 years in a row for the first time since the great depression.

In 2004-2006 a huge bubble built up in housing and the money center and investment banks built a huge bubble in mortgage backed bonds that they paid the rating agencies to rate AAA and sold them around the world as "safe" investments. When the low teaser interest rates began to reset and people couldn't afford their house note, they all tried to sell their house at the same time, the market could not absorb the inventory, house prices collapsed and the junk bonds the rating agencies had rated AAA collapsed hurting many people, companies and municipalities.

I don't see a similar bubble forming anywhere. Perhaps the expansion of the FED's balance sheet. That's the only bubble I see. I don't know enough about the operation of the FED to say what that bubble will cause to happen. I think they know they can't reverse that position too quickly. There seems to be a fear that it will eventually cause higher inflation than we'd like. If the bonds they bought were sold too quickly it would drive interest rates up quickly, but they have to be smart enough not to do that (I think). Leading economic indicators are positive the last 3 months, that's good. As slow as the recovery has been, it would make sense it would not drive a big bubble anywhere. We could be in for a LONG SLOW GRINDING recovery. That's what my gut and some statistics tell me.

Great analysis. But are recessions always caused by bubbles?

At the beginning of this year, I projected that the restoration of the normal fica tax would come straight off our growth, since it is money out of the pocket of the consumer class. I'm actually surprised that our growth has so far exceeded even 1%. But yea, I see no reason why we should expect a recession any time soon.

I would think that unless we have something to suddenly change, either governmental policy (tax or spending policy), or a bubble, or some external factor (opec slowdown of oil production to jack up the price), we will continue to have painfully slow growth for a long long time.

Our best chance for speeding up growth would be a tax cut for the lower income brackets, or an increase in minimum wage. Either would boost demand, increase employment, increase business expansion and profitability, and allow the stock market to keep climbing until it at least reaches the inflation adjusted record high.

 

[imagep]

Wal-Mart cutting 2% due to inventory backlog is not a indicator of another "recession" because if anybody read past the headline from Bloomberg and looked at the numbers.. Wal-Mart isn't cutting 2% due to falling sales but rather what naturally happens this time of year and usually in the spring. Wal-Mart has excess inventory. It won't buy more of stuff they have sitting in a warehouse as it effects the bottom line (earnings). This is business 101.

So you mean that wholesale orders are dependent upon inventory level and demand level? Hmmm.

The jump in 2009-2010 was due to pent up demand. Happens all the time in recessions and recoveries and so is the falling industrial capacity utilization after the pent up demand returns to normal.

Again it seems that demand is the primary driver of our economy.

Wow, color me surprised. You are making illogical conclusions on what's going on.. and leave an open ended date. Signs are just fine, Fed isn't tapering and free money is around for all. There is a slim to zero chance of a recession while the Fed is printing money.

So the fed isn't destroying our economy? That sounds a little contrary to what most of my conservative buddies are telling me.

... didn't you learn from the sequestration which didn't kill the economy as predicted.

I wonder if a year from now many liberals are going to be giving conservatives the same lecture about Obamacare. Soooo many conservatives are blaming our lack of growth on Obamacare, or have even predicted that it is going to "destroy" our economy once fully implemented. It will be interested to see if that comes true any more than the liberals claim that sequestration was going to kill our economy.

 

[finebead]

Great analysis. But are recessions always caused by bubbles?

Recessions are preceded by something basic getting out of whack with long term norms, IMO. It may not be as severely out of whack as to constitute a bubble, a mini bubble? As expansions grind on and everyone is making money, businessmen want to expand their production capacity to capture market share. They are all optimistic that "THEY" can capture the share, but obviously not all of them can, somebody will fail to meet their sales projections. Then someone has trouble servicing the debt they took on to expand, and their earnings go down as their expenses are up but the sales to turn a profit on the borrowing do not show up. In a worse case they may default on the debt, and then the banks earnings go down. That is a recession caused by too much production capacity, but it may not be so much of an excess of capacity to be recognized as a bubble. So, I would say not all recessions are preceded by a true bubble, but they are all preceded by some economic indicator getting too far out of line with historical norms.

Sometimes inflation gets out of whack, but I view inflation as more of a result of other underlying economic activity, such as attempts to expand production causing shortages of labor (something that happened in the 70's, but that probably won't happen again for a long time) or materials. Bidding wars can break out for labor or materials, and cause inflation. Then you can have the FED step in to tame inflation and raise interest rates, which will slow business expansion and can cause a recession, such as Paul Volker did in 1981. But that constituted a bubble in interest rates not seen before or since in the US.

 

[imagep]

...That is a recession caused by too much production ...

That totally flies in the face of what many conservatives believe. They tend to place much emphasis that producing more magically generates the demand to consume it all. More than one poster on this forum has said something like "if we would just start producing more the economy will improve", as if filling up our warehouses with goods that people either don't want or don't have the money to purchase somehow is a good thing.

I'm liking what you are saying, it's a lot more logical than the rhetoric that many spew, and it's based on historical analysis and facts. Two thumbs up!

 

[JP Hochbaum]

I looked at your charts, too. It wasn't very compelling evidence for a recession. So what did I miss? Because the chart on Capital Utilization that I posted shows that reaching the 2008 mark has been reached before and a recession didn't immediately ensue.

I asked you that because we posted the exact same industrial capacity util chart, except mine went to a more recent year.

 

[head of joaquin]

I would add that the income gap has widened to the biggest margin in a century., the result of the recovery being heavily concentrated in the top two brackets. Historically, recessions are preceded by a widening of the income gap. The bigger the gap the bigger the recession. So this is not a good sign, and it is why we absolutely need to raise taxes on the top brackets.

The income gap not only correlates to recessions, but is a contributing cause as capital gets concentrated at the top and misallocated to nonproductive bubbles. This dovetails with the Walmart figures: less income at the bottom, less consumption, less incentive to invest in the production of real goods and services, more incentive to invest in derivatives and other nonproductive bets.

 

[csbrown28]

That totally flies in the face of what many conservatives believe. They tend to place much emphasis that producing more magically generates the demand to consume it all. More than one poster on this forum has said something like "if we would just start producing more the economy will improve", as if filling up our warehouses with goods that people either don't want or don't have the money to purchase somehow is a good thing.

I'm liking what you are saying, it's a lot more logical than the rhetoric that many spew, and it's based on historical analysis and facts. Two thumbs up!

Someone asked me how you could have demand for a product before the product is made. To which I responded, it's not the product people want, it's what the product can do (make them more efficient, happy, thin, healthier, whatever). Before the cell phone was invented, we all would have liked the ability to receive calls away from home. It didn't take the invention to make us realize that.

It just seems like such an easy concept to grasp and yet they just don't get it.

 

[imagep]

Someone asked me how you could have demand for a product before the product is made. To which I responded, it's not the product people want, it's what the product can do (make them more efficient, happy, thin, healthier, whatever). Before the cell phone was invented, we all would have liked the ability to receive calls away from home. It didn't take the invention to make us realize that.

It just seems like such an easy concept to grasp and yet they just don't get it.

Also, many businesses can't produce a product until it has been ordered. I don't understand why they don't get that either. In my business, I produce custom printed products, and I CAN'T produce anything until an order has been placed. It's not like I could just crank up our production, producing a bunch of signs, or business cards, or event tshirts, and just fill our shelves with these items, hoping that a customer with the name of "John Doe" and a phone number of 888-888-8888 happens to walk in needing those business cards, that sign, and those tshirts.

Not even Walmart will order products that it doesn't expect to be able to sell. Demand most definitely comes first, there really is no "chicken or egg" mystery here.

 

[gavinfielder]

I would think that unless we have something to suddenly change, either governmental policy (tax or spending policy), or a bubble, or some external factor (opec slowdown of oil production to jack up the price), we will continue to have painfully slow growth for a long long time.

I'd agree with this. America is the new Japan.

I'm no longer sure a recession is coming, but prolonged inequality and a massive debt problem still exist, and they're not going to fix themselves. Even outside of recession it's a significant drag on the market, and in a recession it makes the economy particularly vulnerable. So we'll be situated for quite a while such that the slightest hit to anything will cause at least a small recession.

Now, If QE is a bubble, the only possible method by which it can burst is flighty stock traders. It's a big confidence platform on rickety stilts upon which the confidence of the real market is based on, regardless that that makes absolutely no sense. But I guess putting it that way, we're ****ed. Great going America.

 

[austrianecon]

So you mean that wholesale orders are dependent upon inventory level and demand level? Hmmm.

Yes. If I have my inventory levels increasing by 3% and yet only demand is increasing by 1% per quarter.. I will always have extra inventory of 2%. Demand hasn't slowed at all... I just have too much stuff.

Again it seems that demand is the primary driver of our economy.

Yes, but demand is within normal levels.

So the fed isn't destroying our economy? That sounds a little contrary to what most of my conservative buddies are telling me.

The Fed is destroying the long term health of the US economy for the short term.

I wonder if a year from now many liberals are going to be giving conservatives the same lecture about Obamacare. Soooo many conservatives are blaming our lack of growth on Obamacare, or have even predicted that it is going to "destroy" our economy once fully implemented. It will be interested to see if that comes true any more than the liberals claim that sequestration was going to kill our economy.

We already know Obamacare is gonna kill growth. You have so many full-time employees being told they are gonna become part time over Obamacare or their costs are gonna go up. There is strong evidence this is gonna become the norm as well.

 

[imagep]

Yes. If I have my inventory levels increasing by 3% and yet only demand is increasing by 1% per quarter.. I will always have extra inventory of 2%. Demand hasn't slowed at all... I just have too much stuff.

If thats the case (I dunno, I'm to lazy to read the article), then demand isn't keeping pace with productivity. Probably due to technology. Regardless of the cause of increases in productivity, when demand doesn't keep pace, it causes unemployment.

Yes, but demand is within normal levels.

It may be within normal levels, but is it increasing at a normal rate? If it isn't, I would think that it is because of growing income disparity. If it is, then obviously demand is being outpaced by improvements in productivity per work hour. Either way, "we have a problem Houston".

The Fed is destroying the long term health of the US economy for the short term.

Those PhD's at the Fed don't seem to think so. I can't imagine why the general public seems to think that we know more than the top experts in their field at the Fed. It's kind of like me playing armchair coach while watching the football game - I'm screaming at the coach, complaining that he is calling the wrong plays and has the wrong players in. Of course in reality, I don't no jack shiit about football, or the team, compared to what the coach knows.

We already know Obamacare is gonna kill growth.

You may believe that, but "we" don't know that. If you had ESP, you probably wouldn't be wasting your time on this forum, you would be in vegas making a mint.

You have so many full-time employees being told they are gonna become part time over Obamacare or their costs are gonna go up. There is strong evidence this is gonna become the norm as well.

I can see that happening. So what does that have to do with killing growth? They replace one full time worker with two part time workers. How does that kill growth?

 

[austrianecon]

If thats the case (I dunno, I'm to lazy to read the article), then demand isn't keeping pace with productivity. Probably due to technology. Regardless of the cause of increases in productivity, when demand doesn't keep pace, it causes unemployment.

Or maybe productivity has to go down? As in the hours worked. But Wal-Mart is trying to make space for Holiday items which is normal this time of year. This is all it is.. yet people jumped the gun and read the headline and assumed it means the whole economy which shows ignorance. Also Wal-Mart could have saturated the market which is BAD for Wal-Mart. Let's see what Target and Cosco says before jumping the gun.

It may be within normal levels, but is it increasing at a normal rate? If it isn't, I would think that it is because of growing income disparity. If it is, then obviously demand is being outpaced by improvements in productivity per work hour. Either way, "we have a problem Houston".

It isn't an either or.. there is gray. But look at JP's OP and his 2nd chart. It's clear that it's normal and has risen in the last 6 months.

Those PhD's at the Fed don't seem to think so. I can't imagine why the general public seems to think that we know more than the top experts in their field at the Fed. It's kind of like me playing armchair coach while watching the football game - I'm screaming at the coach, complaining that he is calling the wrong plays and has the wrong players in. Of course in reality, I don't no jack shiit about football, or the team, compared to what the coach knows.[/quote

4 of the votes don't have PHD's in economics, rather in law or just MBAs. But most of the votes on the Fed are careerist in Academic and Government ventures. So they play the theory game not the reality game. Basically, they look at the problem and apply a theory an expect X to happen. Rarely does X happen so there is margins of error that are long lasting. Greenspan worked the same way. Bernanke is working the same way as well.

Fed can't get out of it's position. I know it, you know it and the world knows it without collapsing the economy. Hence short term over long term favoritism.

You may believe that, but "we" don't know that. If you had ESP, you probably wouldn't be wasting your time on this forum, you would be in vegas making a mint.

I don't need to be in Vegas to make mint. The Insiders: Obamacare and the growth of part-time jobs

I can see that happening. So what does that have to do with killing growth? They replace one full time worker with two part time workers. How does that kill growth?

Two workers for a job that takes one is inefficient. But earning half of what you would if you had a full time job is less disposable income. So if you have a family.. two working parents who have 1 part time job a piece, you have the income of 1 full time person. That doesn't bode well for income disparity.

 

[imagep]

Or maybe productivity has to go down? As in the hours worked. But Wal-Mart is trying to make space for Holiday items which is normal this time of year. This is all it is.. yet people jumped the gun and read the headline and assumed it means the whole economy which shows ignorance. Also Wal-Mart could have saturated the market which is BAD for Wal-Mart. Let's see what Target and Cosco says before jumping the gun.

Productivity is the units of value created per man hour, production is the amount of total work done. But I think you know that already.

It isn't an either or.. there is gray. But look at JP's OP and his 2nd chart. It's clear that it's normal and has risen in the last 6 months.

Sure, thats true, but that doesn't mean that growing income disparity isn't harming sales at Walmart.

4 of the votes don't have PHD's in economics, rather in law or just MBAs. But most of the votes on the Fed are careerist in Academic and Government ventures.

thats interesting to know. If I can only count on you for one thing, it's doing your research on the detail.

So they play the theory game not the reality game. Basically, they look at the problem and apply a theory an expect X to happen. Rarely does X happen so there is margins of error that are long lasting. Greenspan worked the same way. Bernanke is working the same way as well.

Actually I think it is conservatives who play the theory game. But of course we will never agree on that issue.

Fed can't get out of it's position. I know it, you know it and the world knows it without collapsing the economy. Hence short term over long term favoritism.

If this is true, then this means that the Fed is the only thing that kept our economy from collapsing during the Great Recession, thus I would think that they must have done a pretty good job at what they are supposed to do. They need to just keep doing whatever they have to do to prevent the economy from collapsing until it is strong enough, or until we have gov policies (or the elimination of bad gov policies) which will allow our economy to survive without the life support.

I don't need to be in Vegas to make mint. The Insiders: Obamacare and the growth of part-time jobs

Two workers for a job that takes one is inefficient. But earning half of what you would if you had a full time job is less disposable income. So if you have a family.. two working parents who have 1 part time job a piece, you have the income of 1 full time person. That doesn't bode well for income disparity.

My theory is that if unemployment drops below 5%, even if it is due to more part time workers, eventually the unemployment rate will be low enough that companies will have to start competing harder for workers, and thus either compensation will start to climb, or employers will start to hire more full timers. So a workforce full of 29 hour/wk workers may be an intermediate step to full recovery. Heck, I would love to just work 29 hours a week, if I could keep my same standard of living.

 

[finebead]

Fed can't get out of it's position. I know it, you know it and the world knows it without collapsing the economy. Hence short term over long term favoritism.

I don't agree with this statement. FED can't get out of its position QUICKLY without spiking interest rates. But, who said they will? TWIST focused on selling short term positions to buy long term bonds to hold long term interest rates low. The current QE, the biggest one, focused on long term bonds. I have been worried about the increase in the budget item for "interest on the debt" when rates go up, but suppose the FED holds those bonds for 30 years? They are very low interest rates that we borrowed at. If the FED holds them, they will roll off slowly, interest on the debt will NOT go up for 30 years, and by that time the bonds can be paid off in inflated dollars. That is my thesis for how the FED can get out of this slowly and without damaging the economy too much.

What is your thesis for how the economy collapses?