"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Thursday, October 31, 2013

More Bad News for Consumer Spending

As most of you who are regular readers of this site know by now, I am of the opinion that the US economy is extremely weak in spite of the massive bubble in the equity markets. My reason for having this view is that the consumer, the backbone of this debt-based system, is not in a happy mood.

Opinion polls reflect the pessimism of the public at large as the majority believe the US is in decline as a nation and is on the wrong track. Wages are stagnant and as a result of that abomination known euphemistically as the "AFFORDABLE" Care Act ( it is anything but that for the vast majority), many workers have been cut from full time to part time status or have lost their health insurance benefits. That means they will have to foot the bill for that out of their own pockets now. Translation - that leaves less money for discretionary consumer spending.

Now comes the news that as of this Friday, the temporary boost in food-stamp benefits that was passed not all that long ago will expire. Analysts are projecting that will leave 48 million Americans with an estimated $16 billion LESS to spend over the next three years - according to an article from Dow Jones Wire Services this AM.

This will hit low-income shoppers the hardest. That demographic tends to frequent the discounters, dollar stores, mini_marts, etc.

Also, the story relates a fact that I had forgotten but was glad to be reminded of - the temporary payroll tax cut which was enacted but expired some months ago  also leaves consumers with less money to spend.

Perhaps the one saving benefit of these deflationary type pressures has been the drop in crude oil and by consequence gasoline prices and heating oil prices. If we get the type of winter that some of the firms are suggesting, consumers will be thankful for that at least.

Regardless, my take remains the same - there are too many deflationary factors at work from a structural standpoint to allow the Velocity of Money to increase any time soon. That will be a tough headwind for gold to deal with without some sort of other catalyst that cracks the confidence in the Dollar.

I am carefully monitoring interest rates here in the US as that will also have a significant impact on the consumer borrowing and spending issue.


  1. Dan,
    I have felt this decline in sentiment the last several months despite the buoyant stock market. It would seem the Fed will not have the conviction to play tough with the economy as the ACA and the pressures people feel due to many rising expenses like healthcare and education take hold oddly in this deflationary environment.

    Your call on gold last night was right on. Often times the real moves in gold that dictate its loss of momentum come after hours leaving investors at the mercy of the markets. Traders I guess can get in and out when they want. It is a traders market.

  2. Dan, you, MISH, Armstrong, and yours truly are of the same mind; good letter, swb in sparks

  3. Silver is just cratering today.

    1. only a matter of time before we put a 19 in front of it; sparks

    2. Great Site Dan. First heard of your comments from Jim Sinclair. Trying to work my feeble capital and generate some cash. Nice site. To the poster above, what makes you think under 20 again?

  4. Okay, so how does this work?
    Armstrong says the world economy is being destroyed and it will end poorly.
    Yet, he says, buy equities ! but don't buy equities in miners or commodities, so that leaves..consumer discretionary..huh?
    Another analyst that I subscribe to who is well known to many of us is almost over the top Pollyanna for western equities and the economy.
    Sooo...the economy is weakening and being destroyed but buy consumer discretionary equities with 200 P/E's to protect yourself.... because the economy is really improving while it is being destroyed ??
    Above all..buy equities not Gold because equities are your best bet to protect yourself against downward consumer spending in a improving economy that is in decline ?
    Do you think we are being herded into equities ? or am I just imagining all of this ?
    aaaargghhh !

    1. Dean, do not try making sense of fouled up and broken mkts, but just trade the action and momentum; sparks

    2. Yep Steve

      I hold my nose and buy US equities. Make hay while the sun shines.
      We all know how this all ends..we just don't know when.
      I just hope I am smart enough to know when to bail.

    3. Dean
      Armstrong says that P/Es are meaningless. He suggests buying equities as: 1) capital is shifting from the public to the private sector (part of the wave); 2) pension funds need to raise their income; 3) cash will become dangerous to hold (ie, bail-ins; and 4) Europeans/Japanese need to move capital as the government is getting more aggressive in taxing).
      The Dow at 32,000 is a maximum projection (minimum is 17,000) and he appears to be waiting for the Dow to break out before confirming which is more likely.
      Personally, im waiting for a big pull back before l go long the Dow. Armstrong suggested that it could make a short-term peak this weak.

  5. good missive... When 60% of AAPLs revenue comes from overseas, a drop in American spending won't slay it. Everything drops from taper except... stocks. It's a bubble. The market should have been down today, I shorted eminis to keep option profits locked and the options fell, but the eminis are absolutely flat.

    i wonder where the equities would be up to if they didn't have to retrace from the budget fallout?

    Eventually the dollar will just be a tool for companies to report profits in, as most business is transacted overseas.

    Hedge all long holdings of physical.

  6. Well...I guess we are in a improving worldwide economy that does not need raw materials or create much in the way of jobs.
    Even people who are broke and unemployed can buy the latest i phone,new car, go on vacation and play video games.

  7. the only thing that keeps me from shorting the heck out of gold is the long position of the banks, especially JPM. However, I remember that JPM sold the crap out of allocated customer gold, and anything else not nailed down during the slamfest earlier in the year, perhaps they are long to collect gold to put back into storage. They buy those contracts down low and collect as supply permits. I am only 65% hedged right now. This is the strong season, but it is beginning to get long in the tooth.

    I have been shorting the spoos all day on strength. It worked out well as I shorted 2 contracts at 1762.5 and covered at 1753.5 at close, and slightly more than covered the loss in options. I think we will see further selling next 2-3 days with a test of SPX high 1730's in the cash. and low 1730's on the dec contract.

    We should see the cash touch 1800 by end Nov. Yellen nomination may be held up by Republicans, making it another donnybrook.

    Gartman looked like a fool today on clown TV, hedging his remarks in the wake of his recommending gold buys and sells at the worst times. Like Dan says, just scalp and short term stuff. these markets - other than equities - are a complete mess, a centrally managed mess.

    Silver got crushed as the banks are short. Why anyone would own silver as an investment is beyond me. Gold is the way to go. So much easier to deal with.

  8. Well, this is even scarier crap than the standard manipulation worldwide of everything. Dan, turn over all your guns to the DOJ today. Mr. Holder wants to abide by the UN treaties.


  9. The full faith and trust in the US dollar will eventually evaporate unless our masters start a war and decimate most of the people who will fight this, otherwise, it will just be a slow march until the waterfall. At that point the Hedgies, the banks including the Central Banks will not be able to repair the damage. And yes, there is NO ALTERNATE PLAN. The printing presses will continue.

  10. Wolf
    A famous quote
    "I'll give you my gun when you pry (or take) it from my cold, dead hands"

    I hate to say it but " they WILL pry it from your cold, dead hands"

    Your Constitution will no longer protect you.

  11. Just read my weekly report from a service I subscribe to.
    Nothing but blue skies and sunshine ahead for the US consumer.
    Party on dude !
    5% growth in world GDP in 2014, and this is the minimum..higher can be expected.
    The US will lead the way according to this analysis.
    Armstrong is probably right when he predicts 30k+ on the DOW.

    When this ends, and it will, it will be a sight to behold.


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