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Caution: Slowdown Ahead

Authored by Sven Henrich via,

Many of you know I keep posting charts keeping taps on the macro picture in the Macro Corner.

It’s actually an interesting exercise watching what they do versus what they say. Public narratives versus reality on the ground.

I know there’s a lot of talk of global synchronized expansion. I call synchronized bullshit.

Institutions will not warn investors or consumers. They never do.

Banks won’t warn consumers because they need consumers to spend and take up loans and invest money in markets. Governments won’t warn people for precisely the same reason. And certainly central banks won’t warn consumers. They are all in the confidence game.

Well, I am sending a stern warning: The underlying data is getting uglier. Things are slowing down. And not by just a bit, but by a lot. And I’ll show you with the Fed’s own data that is in stark contrast to all the public rah rah.

Look, nobody wants recessions, They are tough and ugly, but our global economy is on based on debt and debt expansion. Pure and simple. And all that is predicated on keeping confidence up. Confident people spend more and growth begets growth.

But here’s the problem: Despite all the global central bank efforts to stimulate growth real growth has never emerged. Mind you all this is will rates still near historic lows:

And central banks supposedly are reducing the spigots come in 2018:

I believe it when I see it. In September the FED told everyone they would start reducing their balance sheet in October. It’s November:

September FOMC: The economy is so strong we'll reduce our balance sheet beginning in October.
It's November.
How is all that going?

— Sven Henrich (@NorthmanTrader)

I guess we’ll need to give them more time. After all it’s only been almost 9 years

But let’s get into the actual data, and it’s all from the Fed’s own website.

Here’s what I’m seeing:

Commercial loan growth keeps collapsing and is dangerously close to going negative:

Any way you cut it or slice it this is not a positive development or trend. It’s a slow down.

And if you look at the same data for foreign related institutions the trend is already negative:

Speaking of loans, here are real estate loans:

Slowing. Actually makes sense, look at home sales growth themselves:

Negative growth.

It gets worse. Much worse.

Let’s look at the consumer.

Loaded up on debt as we know, but piling into revolving high interest debt. You know, credit cards and such:

Why is this bad if all this global synchronized growth is supposedly going on? Because consumers are struggling big time and this debt expansion could be a sign of emerging desperation on the side of some consumer. People are subsidizing their spending needs with high interest debt.

Certainly consumer loans are not growing:

No they’re slowing and they’re heading toward negative at this pace.

Maybe consumer are saving? Nope, they’re not, the savings growth rate is dropping. Hard:

The Fed keeps insisting there’s no inflation. Could it be that consumers are disagreeing?

After all rent is their largest expense line item:

CPI for primary residences has been hovering near 4%.

That’s perhaps ok if your real wages are keeping up, but clearly real disposable income growth is meandering:

Where’s the expansion?

Well it’s in personal interest payments and debt:

It’s certainly not in the auto sectors or real estate. How about retail?

Here’s a chart to get your attention:

Negative growth in retail employees. The last 3 times this growth rate went negative we went into a recession.

The reason for this trend is not an unknown: Record store closings as part of the retail apocalypse. Don’t worry, $AMZN will take care of the dead retail ghosts walking out there. Right?

I know the narrative is record low unemployment, but know this is fuzzy math. There used to be a relationship between the unemployment rate and the labor participation rate. No any more:

Many of the reasons are structural of course, but that doesn’t change reality. Yes the labor participation rate improved slightly since 2015, but it’s slowed down in growth again.

So here we are, near the end of 2017 and markets are at record highs and synchronized growth is all the rage.

The data points above tell a very different tale and there is a mismatch in narrative, one which the yield curve so aptly summarizes:

So something’s off folks.

We just had almost $5 trillion in global central bank intervention since the February 2016 lows when central banks panicked.

Make no mistake, growth, as it appears, is bought for and market levels are bought for with easy money, loose financial conditions and low rates, just look at the $DAX if you don’t believe me:

outside reversal week.
Note the entire construct is manufactured and maintained with low yields.

— Sven Henrich (@NorthmanTrader)

‘TINA’ (there is no alternative) till it hurts.

Our own growth expansion story is still a big question mark at best.

Industrial Production is still below 2015 levels:

GAAP earnings have recovered (as they should have with record central bank intervention and the loosest financials conditions in place), yet market prices have undergone through significant multiple expansion since then:

But don’t worry. Tax cuts will bring about a nirvana of growth. I’ve outlined my thoughts on the subject in Tax Cut Scam.

Perhaps all this magic growth will come.

If it is, the Fed’s own website doesn’t appear all that confident:

Which is odd for an organization in the confidence business.

The public narrative is saying synchronized global expansion. The charts above say otherwise.

The are saying: Caution. Slow Down.