This article was published by The McAlvany Intelligence Advisor on Friday, October 5, 2018:
Conor Lynch is a New York City liberal whose writings have appeared on Salon, AlterNet, Counterpunch, and openDemocracy. But in his latest blog at TheWeek.com, he left all that baggage behind and instead focused on the harbingers for a downturn in the U.S. economy. He wrote:
A decade after the collapse of Lehman Brothers, there are plenty of reasons to suspect we are ripe for another economic downturn. More than a century of data on business cycles show that recessions tend to come every five to 10 years, indicating that the [present] boom may be entering its final innings.
He wrote that the most obvious reason is the national debt, about which this writer just wrote here on Wednesday. Lynch added that not only is the national debt a great concern, so is corporate debt, which, he says, “may be a ticking time bomb. It’s already at a record high and the portion of it that’s considered high risk is larger today that it was even before the financial crisis.” In addition, wrote Lynch, “consumer debt has also returned to historic levels and is set to reach $4 trillion by the end of 2018.”
But he failed to mention other clouds forming on the horizon (to change the analogy), which include the cloud in the housing market that could spell trouble for the economy, according to Lakshman Achuthan, co-founder of the Economic Cycle Research Institute (ECRI). He toldCNBC’s “Trading Nation” on Wednesday that, “Our leading home price index has made a downturn that it hasn’t made in a long time. The last time it was this weak … was in 2009 coming out of the last recession, and this leading index in 2006 really did call the housing bust [that triggered the Great Recession].”
There’s the new car “dealer doldrums indicator” that is clouding part of the sky. According toAutoNews, September auto sales year-over-year are off severely, many by double digits, among the nation’s biggest carmakers. Ford sales are off 11.5 percent, General Motors’ sales are off 15.8 percent, Fiat Chrysler’s sales are off 11.5 percent, Honda’s are off seven percent, Nissan’s are down 13.3 percent, while Toyota’s sales are down 10.4 percent.
Floyd Norris, long a financial correspondent for the New York Times, says that when that “dealer doldrums indicator … is down two percent or more, a recession is either under way or set to begin within a few months.”
Still another cloud is the age of both the bull market in stocks and the economic recovery from the Great Recession. The bull market celebrated its ninth birthday in March and continues to set a record as the longest bull market in U.S. history. And right behind it is the economic expansion that is now 111 months old, and will become the longest ever if it continues to next June.
There are stock evaluations compared to earnings that have reached towering proportions. Goldman Sachs just analyzed 40 years’ worth of data and found that the valuation of the average stock in the S&P 500 index “is now in the 97th percentile” of historic averages.
There’s the price of crude oil, which just hit a four-year high, a harbinger of gas prices at the pump easily hitting and exceeding three dollars a gallon before the end of the year.
According to one market bear, even the good news from the Conference Board that consumer confidence now hovers at an 18-year high is bad news. Wrote Albert Edwards to his clients at Societe Generale last month: “The U.S. consumer has gorged on optimism until they are fit to burst. This [report from the Conference Board] is as good a contrary indicator as [any].”
Especially unnerving (wrote this writer here on Wednesday),
is the report from the U.S. Treasury … giving advance warning of the economic tsunami preparing to roll over the American economy. Precious few are taking heed. On September 20, the Senate passed another spending bill – $854 billion – calling it a “stopgap” bill to pay the government’s bills until after the midterm elections. It passed 93-7.
This brought the national debt of the United States government to $21.5 trillion, up from $20.2 trillion a year ago. The Treasury report for the fiscal year that ended on September 30 showed an increase in the national debt of $1.3 trillion, year over year, or more than six percent. Unless federal spending is reined in, that means that [using the Rule of 72] the national debt of the United States government will double – to $43 trillion – in less than 12 years.
None of these is itself a red flag or a storm warning for the economy. But taken all together….
An Ivy League graduate and former investment advisor, Bob is a regular contributor to The New American magazine and blogs frequently at LightFromTheRight.com, primarily on economics and politics. He can be reached at firstname.lastname@example.org.
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