Yesterday, I asked whether the world is falling apart. I concluded there was (at least) a 50% of chance of a Global Depression. Such an event would undoubtedly drag down the United States along with all the other failed states. Where's the bottom? No one can predict the future, but I think my baseline 50% chance may be a tad optimistic. We'll see.
Check out Dow Theorist Richard Russell's note to his clients—
Do your friends a favor. Tell them to "batten down the hatches" because there's a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don't need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won't recognize the country. They'll retort, "How the dickens does Russell know -- who told him?" Tell them the stock market told him.
Naturally, Russell expresses a stock-market-centric view of things, but I agree with the sentiment—A Hard Rain's a-Gonna Fall. We can turn to Wal-Mart for a more fundamental indicator of where stand.
(Fortune) -- It certainly looks like happy days are here again. Many of the nation's biggest retailers, including Saks, Hewlett-Packard, Home Depot, and Target have released cheery sales reports. April's jobs reports showing a slight increase in the workweek and pay for workers, and more hiring across the board...
And then there is Wal-Mart, whose happy yellow face switched to a grimace when it released first quarter sales on Tuesday. Although international growth helped push revenues up 6%, sales at U.S. stores fell 1.4% from the same period last year. And the company had no one to blame but its shoppers. "More than ever, our customers are living paycheck to paycheck," said Tom Schoewe, the chief financial officer.
So who are you supposed to believe? In this case, Bentonville. When Wal-Mart, an economic bellwether, notes that customers can't afford the gas to get to the stores and that they're increasingly using food stamps when they get there, things are bad.
Things are bad? No shit! What was your first clue? (See my Gourmet Eating With Food Stamps and GDP Is The Real Fraud.)
The only difference between a month ago and now is that CNNMoney and Fortune and others have started notice that things are bad. And why did they start noticing? Because the heretofore overvalued, rigged stock market is crashing. As unbelievable as it sounds, that's precisely what it took for these fools to discover that there is a huge impoverished underclass in the United States, a society where 85% of the people own a meager 15% of the wealth. When the market was soaring, none of this mattered—Happy Days Were Here Again.
The Los Angeles Times is also becoming enlightened. This quote is from their Consumer spending trend is a shaky foundation for economic recovery—
May 16, 2010 By Don Lee, Los Angeles Times
Reporting from Washington — Increased consumer spending has fueled hopes that the current economic recovery will keep getting stronger, but behind the encouraging numbers is a little-noticed reality: Much of the new spending has come not from America's broad middle class but from a small slice of affluent people at the top.
And upper-crust spending, while welcome, can be worrisomely volatile: Since it involves luxuries, not everyday necessities, the buying can suddenly shrink if something such as the recent stock market plunge panics affluent shoppers.
Here we have the direct connection between rosy retail sales numbers and the stock market. The rich have boosted sales, but now that they're losing money in the market again, they may pull back on luxury purchases. (See my The Rich Are On The Rebound.) Did anyone really think The Poor or the debt-laden not-so-broad-as-it-once-was Middle Class were the ones pushing retail sales higher? Give me a break!
At Tech Ticker Henry and Aaron note that the latest CPI indicates deflation, not inflation. As the Great Depression economist Irving Fisher noted in 1933, the value of the dollar is "swelling," not shrinking. Unfortunately, this is not good news for desperate households living paycheck-to-paycheck. When goods & services get cheaper over time, there is little incentive to purchase said goods & services. Decreased demand means decreased economic growth and even higher unemployment than we've got now.
The only good news I can find in this economic implosion is that the oil price is also crashing, which will mean lower gasoline prices when retailers eventually get around to marking down prices.
Throw in the crisis in Europe, the crumbling housing market in the United States, and the impending collapse of the bubblicious Chinese economy, and you've got the makings of a Hard Rain. Here's Bob—
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