The US economy’s check engine light is on, despite the vocal rhetoric of President Trump, his administration, and the media spewing the same nonsense of a rising stock market and how the unemployment rate has been steadily declining. Trump supporters, as well as Donald Trump himself, before January 20th rightly spoke of a “bubble economy” and how the obstacles would be difficult for President Trump to deal with current state of the economy.
Something flipped though after January 20th.
It is as if the bubble all of the sudden was not a bubble any more. Trump praised the Dow Jones for hitting 20k just a few days after his inauguration as if the economy was legitimate now that he was in power.
Here is the funny thing: bubbles do not go away just because your guy is in power. Many Trump supporters I see on social media as well as the notorious Fox News channel keep touting the stock market because of its continuous rise but will be blindsided by the bursting of this “big, fat, ugly bubble” as campaign Trump put it.
Indeed, there is a bubble. The massive financial asset inflation fueled by the Federal Reserve’s cheap credit, along with speculation investing from Wall Street is going to see its ugly end soon.
The Atlanta Fed on June 1st estimated a 4% GDP growth for Q2. The next day they slashed that to 3.4%. During Q1 the final forecast for GDP was 0.2%, the lowest since 1980. Might I remind for those who keep up with the complex monetary history, a recession began in 1980.
The retail bubble continues to deflate, with department stores letting go of nearly 30,000 positions in the last 12 months and for 4 months in a row, retail has shed jobs. Over 8,600 stores are set to close in 2017. Of course, a lot of the retail stores closing is due to the rapid rise in online shopping, however the rapid increase of physical stores closing in nothing to ignore.
For added pain, the re-inflated housing bubble has shown its ugly face again. The Case-Shiller index, which tracks home-prices in the US, hit a 33-month high and has been climbing up since 2010.
Finally, the latest jobs report from May have jobs growth slowing to just 138,000 and an unemployment rate at 4.3%, the lowest since 2001. The unemployment rate is faulty at best, as full-time jobs have plummeted the last few years (367,000 in the last three years) as workers have taken on more part-time jobs. The jobs added in May were mainly minimum wage jobs, with education and health adding 47,000 jobs, leisure and hospitality were added 31,000, food and services added another 30,000, temp help added 12,900. All this being said the labor force participation fell to 62.7% and is expected to continue to fall.
As an equities trader, the long-run does not look good. I would certainly place bets that the government could officially call a recession in early 2018, though in my humble opinion we have already entered in the deflationary period, and the only entity continuing to keep this deflation from happening (by the way we need a deflation in prices, wages, etc.) is the Fed. There are already rumors of the Fed holding off from halting rate hikes this month as skepticism grows amongst Fed officials.
