When no-name naysayers opine that the U.S. economy is headed
into a tailspin, you can often take it with a grain of salt. But when credible,
well-established government agencies issue hard data denoting a big decline,
it's a different story: You've got to stand up and pay attention.
Consider, for example
...The U.S. Energy Information
Administration (EIA), the primary government authority on energy stats and
analysis. Unlike the Fed, it doesn't
make policy or even advocate policy. By law, no outside officer or employee of
the government can interfere with what it concludes or says.
And right now, the EIA says that ...Just from August to September,
U.S. crude oil production declined by 120,000 barrels per day ...Production
will continue to fall sharply next year, leading to a mass reduction in
spending on major oil projects. And, to add insult to injury ... U.S. crude oil
supplies have just surged by 7.6 million barrels — over four times more than
analysts expected.
Meanwhile, executives attending the Oil and Money conference
in London warn that a "dramatic decline" in U.S. production is now
under way.
Their reasons: world oil prices are now too low to support
U.S. shale oil output, the biggest addition to world production over the last
decade. And it's not just because of declining oil prices; bank financing for
shale projects has completely dried up.
As the Dow Doubles ...We are on the cusp of the most
profitable bull market of our lifetime. Stocks will be driven higher by
powerful global undercurrents that Wall Street will either ignore or fail to
understand. As the Dow doubles, some stocks will see explosive gains of 300%,
400%, 500% and more. Savvy investors who make the right moves will become very
rich! (if you buy stocks after they hit the bottom)
OPEC agrees. The oil cartel sees U.S. production falling for
the first time since 2008. The big problem is that, despite falling global
demand, OPEC members are not cutting production like they might have in prior
years. They're too afraid to lose an even bigger share of the global oil
market. So they continue to pump oil at a feverish pace.
Impact on global oil prices: No relief from record lows. Impact
on U.S. economy: Huge. The U.S. energy
industry is the third-largest industry in the U.S. And that excludes thousands
of companies and millions of jobs that feed off the industry indirectly.
The U.S. Department
of Agriculture (USDA), unlike the EIA, is responsible for policy. But ever
since Abraham Lincoln started the agency during the U.S. Civil War, millions of
players in the commodity markets have relied on its forecasts.
And right now, U.S. agriculture is getting killed. Take
wheat, for example, one of the America's largest field crops: According to the
USDA's Economic Research Service, U.S. wheat exports have plunged to their
lowest level in guess how many years! Not
10. Not 20. But 44! That's right. The
last time our wheat exports were this bad was back in 1971.
The big problem: The United States is virtually priced out
of the global wheat trade, with still more hits to U.S. exports on the way.
But this disaster is not limited to just one crop or even
one industry. Indeed, the primary driver of the slump is a powerful force that
cuts across all U.S. exports — the sharp rise in the U.S. dollar.
According to Bob Young, chief economist at the American Farm
Bureau Federation, it's the dollar's 20% surge since July 2014 that's mostly
responsible for gutting U.S. farmers. (And, as I'll illustrate in a moment,
it's also the same force that's now killing U.S. corporate earnings.)
Meanwhile, foreign farmers and agribusinesses can jump in
and sell their commodities at dramatic discounts, thanks to an unprecedented
plunge in their local currencies.
Brazilians, for example — leading producers of soybeans,
coffee and sugar — can greatly undercut U.S. farmers thanks to a 42% crash in
the Brazilian real since last July. Russian farmers? They're leveraging a
currency collapse of 48%.
All "contained" to energy and commodities? No way!
Anyone who buys that argument is in for a rude awakening, as I'll show you
next.
At the U.S.
Department of Labor, the headline unemployment number is not quite as
reliable as stats from the other government agencies I just told you about.
But when all their
underlying data is terrible ... when big companies are announcing
layoffs ... and when every other source
paints the same dark picture, then you
know the trouble is for real.
That's the situation we have now: In the last couple of
months, nervous U.S. employers — small, big and huge — have suddenly started to
pull back sharply on their hiring.
A key reason: On top of the U.S. dollar being strong,
foreign markets have plunged, foreign buyers have shunned U.S. goods, and U.S.
manufacturers are getting stuck with big unsold inventories.
But if you think the latest job numbers were bad, brace
yourself for what's coming next. Giant U.S. companies like Caterpillar,
Hershey, Wal-Mart, ConAgra Foods, Chesapeake Energy and others have already announced big
layoffs, and these layoffs are not yet included in the Labor Department's unemployment stats.
There was one bright spot in the September job numbers,
though: Most retail companies continued hiring. The problem: Now the retail
sector is also starting to take a hit.
We know because of the latest release last week from the
U.S. Department of Commerce. Now, if
sheer size (not gross inefficiencies) were the criteria, this executive-branch
agency would probably be the most impressive data source in the world. But
regardless of their problems, there's little argument that U.S. retail sales
are now getting hammered.
September sales were only half of what economists were
expecting. The gains previously reported for August were totally bogus —
completely wiped out by revisions, and ...
Only six out of 13 categories showed sales gains, a sign that
the malaise is starting to spread throughout the economy.
The clincher to all this is corporate earnings: Despite a
few notable exceptions here and there (like Citigroup last Thursday), one major
company after another is releasing shockers that cast a shadow over the entire
U.S. economy.
The prime example is retail supergiant Wal-Mart. It's the world's
largest retailer. It has nearly half of a trillion dollars in annual revenues.
And it's gotten crushed. Last Wednesday, it announced its profits will miss forecasts
by a country mile: Rather than rising 4% in the next fiscal year as analysts
expected, they're going to fall 12%. Result: Wal-Mart shares suffered their
biggest one-day crash in 17 years.
But they're not alone. CNBC highlights how even industry sectors
thought to be immune are now falling by the wayside — luxury goods (example —
Burberry), health care (e.g. HCA), consumer discretionary (Garmin), and many
more.
Look. Even assuming stock analysts have learned their lesson,
and are finally getting it right, S&P 500 profits are now forecast to drop
at the fastest rate since the tail end of the Great Recession.
What does all this mean? I don't think I have to connect the
dots for you. It's obviously not good for stock investors ... unless you can do four things: Use stock
market rallies — like the one we've seen in recent days — to help build a huge,
oversized cash position. Wait patiently for most stock prices to take another
big hit, whether now or later. Then, consider strictly extreme top-notch
quality.And hedge your risk with investments that are designed to go up when
stocks go down.
Good luck and God bless! Martin, Money and Markets
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