Major Indicators Flash Recession Warning: Savings Deposits Inflows, Capital Spending, And Household Debt Just Hit Recessionary Level While Derivative Markets Starting to Crack
Is The Largest Weekly Inflow Into Bank Savings Accounts On Record, A Flashing Red Alarm?
When one thinks of America, the word “savings” is likely the last thing to come into a person’s head, for the simple reason that the vast majority of Americans don’t save: recall that in September the personal savings rate dipped to 3.3%, the lowest since 2009 save for one month.
On the surface this makes sense: the average US consumer, tapped out, with more spending than income, has no choice but to max out their credit card, and eat into whatever savings they may have.
This is usually as far as most contemplations on savings go. And this is a mistake, because at least according to official Fed data reported weekly as part of the H.6, which lists the data on the various components of M1 and, more importantly, M2, the real story with US savings is something totally different.
When was the largest ever inflow into Savings Deposits at Commercial banks, at $131.9 billion in one week? This past week.
We don’t know, but the people who control $5.6 trillion in US commercial bank savings deposits – certainly not the vast majority of the US population who have virtually no money saved up, but the true 1% – just decided to park the most cash on a week over week basis into their savings accounts in history.
Perhaps ask them why they did it…
US Capital Spending Plummets To Recession Levels
The problem is that as David Rosenberg pointed out earlier, companies are now forced to spend the bulk of their cash on dividend payouts, courtesy of ZIRP which has collapsed interest income. Which means far less cash left for SG&A, i.e., hiring workers, as temp workers is the best that the current “recovering” economy apparently can do. It also means far, far less cash for CapEx spending. Which ultimately means a plunging profit margin due to decrepit assets no longer performing at their peak levels, and in many cases far worse.” Today, with the usual six month or so delay, this fundamental topic has finally made the mainstream media with a WSJ piece titled “Investment Falls Off a Cliff: U.S. Companies Cut Spending Plans Amid Fiscal and Economic Uncertainty.”
In the meantime, here is the pretty WSJ chart proving the collapse in CapEx:
Readers will recall that all of the above was noted a month ago, when we noted the gaping divergence between corporate and consumer outlooks in “What Do CEOs Know That The Consumer Doesn’t?”
As for the WSJ’s stark awakening on the CapEx reality, here is some of their narrative, where everything is, for now, the Fiscal Cliff’s fault:
U.S. companies are scaling back investment plans at the fastest pace since the recession, signaling more trouble for the economic recovery.
Half of the nation’s 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next, according to a review by The Wall Street Journal of securities filings and conference calls.
Nationwide, business investment in equipment and software—a measure of economic vitality in the corporate sector—stalled in the third quarter for the first time since early 2009. Corporate investment in new buildings has declined.
Household Debt Hits Pre-Recession Levels
U.S. household debt has finally fallen back to pre-recession levels. So, we’ve finally learned our lesson about spending more than we make, right? Well, not really. The real reason our debt has dipped is that so many Americans defaulted on bills they couldn’t pay.
Moody’s Analytics and the Federal Reserve released a batch of figures last week showing a significant dip in U.S. household debt. According to Moody’s, the combined amount owed on our home mortgages, credit cards, and other outstanding liabilities have gotten down to about $11 trillion, which is about what it was in 2006. Federal Reserve numbers show that household debt as a share of disposable income dipped to 113% in the second quarter of 2012. It hit 134% in 2007, right before the recession.
Chicago PMI Now Running at Recession Levels
from 24/7 Wall St:
The report for September’s Chicago purchasing managers is a huge disappointment, and the report is sending stocks further south (DJIA -112 and S&P 500 -11). The adjusted index fell to a recessionary/contraction level of 49.7 from 53.0 in August. This is a recessionary number and it echoes the cautious stance seen from CFO and CEO outlooks that came out this week from other sources.
‘Unprecedented’ bond market calls for trimming credit risk: bond expert
Dan Fuss, vice-chairman of Loomis Sayles & Co. and long-time manager of Loomis Sayles Bond LSBRX -0.47%, says that the bond market today is unlike anything he has seen in a career spanning more than five decades, and that investors, as a result, should “dial back on the credit risk” and “be careful on the maturity risk.”
Appearing in “The Big Interview” on MoneyLife with Chuck Jaffe, MarketWatch senior columnist, Fuss noted that he never would have forecast the kind of protracted low-rate environment that income-oriented investors are facing today.
“If we had been talking five years ago and somebody had said to us ‘here’s what it is going to look like,’ I would have said ‘not one chance in 1,000,’ and yet here we are,” Fuss said. “It is extraordinary — there is not a precedent for it and we are sort of in uncharted waters.”
Money contraction equals deflation and it is contracting now. Last time I saw this happen was in 2008. Bond yeilds 10yr from 1.7% to 1.58% in a matter of a week.
Look at the debt clock. Credit and derivatives are decreasing at an alarming rate, thus the overall money creation. http://www.usdebtclock.org/
Top Nomura Economist Is Skeptical Of Fiscal Cliff Progress — And There’s Good Reason To Take Him Seriously
There are two reasons why you should listen to him, and maybe take him more seriously than the typical Wall Street economist. One is that he was just down in Washington talking to contacts. The other, and this is more importantly, is that he used to be part of Tim Geithner’s Treasury Department, so it’s safe to assume he’s very well sourced (and prior to that he was at Citi).
He identifies four key points where the two sides remain far apart:
- Still no actual agreement on tax rates.
- Still no sign that Democrats will give any ground on entitlements.
- Still not clear that the Democrats and Republicans are close to a number on revenues.
- Other spending cuts not agreed to.
Those might sound obvious, but he adds some more meat to his argument:
At this point it does not appear that the two sides have exchanged specific proposals. Consequently, it is not clear whether these differences can be bridged.
It does not appear that the need to raise the debt limit early in 2013 is being actively discussed as part of the “fiscal cliff” negotiations. Any agreement on fiscal issues that does not include an increase in the debt limit would provide only short-term relief to markets.
We continue to believe that it is marginally more likely (55%) than not that a broad agreement to a framework for implementing deficit reduction can be reached before the end of this year.
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Peter Schiff warns of the inevitable U.S. economic collapse which will occur unless serious changes are made to our monetary policy.