Why We are in Worse Shape than Before the 2008 Crash

from Grams Gold This quarter’s final Q1 GDP dropped like a rock, coming in at 0.2, dropping 11 times – from 2.2 in the last quarter. Almost comically we heard the same excuses we got last year. “Weather was wintery and next year is going to be the turnaround year”.

I’ll show you how the key economic indicators are worse than they were just before the 2008 crash, indicating we are imminently poised to experience an even worse crash. The last time we saw a $100B peak to trough draw down was between June 2008 and January 2009. However, while it took 7 months to give up $100B in wholesale trade during 2008, we’ve just done it in only 4 months.

I want to hone in on the category of consumer spending that is first to go away, so that we may capture the first signals of a consumer spending pull back. The chart below captures the consumer spending taking place at large department stores (Macy’s, Kohls, Walmart, Kmart, etc). Picture What we find is that over the past 6 months we had a tremendous drop in true discretionary consumer spending. A worrying signal to be certain as we would expect this pull back to begin impacting other areas of consumer spending. The reason is that American consumers typically do not voluntarily pull back like that on spending but do so because they have run out of credit. And if credit is running thin it will surely be felt in all spending. But one chart doesn’t a story tell, and so we must continue in our quest to determine whether or not we are on the precipice of another crisis. Another early indicator I like to look at is wholesale trade. Picture Currently we find ourselves on the bottom of the latest peak to trough draw down which has given up more than $100B in wholesale trade. Interestingly we should note that the last time we saw a $100B peak to trough draw down was between June 2008 and January 2009. However, while it took 7 months to give up $100B in wholesale trade during the Credit Crisis, we’ve just done it in only 4 months. If I haven’t convinced you yet that we are entering the final phase before the financial crash, well let’s carry on. Again, we’re looking for early indications as to what we can expect in output (economic activity) going forward. So why don’t we have a look at manufacturing new orders to gauge what’s going in the pipeline because that should tell us how much output to expect over the rest of this year. Continue Reading>>>

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