Mr. Toad’s Wild Ride…

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…is just about over. There is mounting evidence that we are approaching a global tipping point where governments have run out of options to manipulate the world economies. For the past 6 or 7 years, people around the world have been fed a steady diet of cheap money, global treasuries have been running the printing presses 24/7/365 and governments have been enacting “stimulus” spending that has generated almost nothing of long term value in return.

Now we are coming to the end.

Herb Stein’s Law is in effect:

If something cannot go on forever, it will stop.

There are signs that the grand wheels of global commerce are about to grind to a halt.

You can’t have real economic growth based on personal or government spending when that spending is used solely for maintenance, simply to prevent sinking lower, and not growth based on true consumption driven by demand. Government spending is like a crutch and until the patient can cast off that crutch and walk on his own, a recovery cannot start. For the past several years, we have been leaning on this crutch but this administration seems intent on letting our legs start to heal just long enough to walk only to break them again.

ZeroHedge points out that real demand is down as evidenced by oil tanker rental rates:

While everyone knows about the epic oversupply of dry bulk containerships as a result of the pre-bubble surge in charter rates (and subsequent collapse), which sent many shipping companies to an early bankruptcy or outright liquidation and also resulted in very depressed shipping rates for the last several years as the supply overhang continues to be cleared out of the system (coupled with still depressed end-demand for “dry” commodities) , few may be aware that in the past several months the same fate has befallen the oil-tanker industry. As Bloomberg reports, John Fredriksen’s oil-tanker behemoth Frontline Ltd., said it’s rejecting some cargoes after a rout in rates for the vessels. “Frontline is offering tankers for charters “selectively” and the market is in a “state of panic” as excess ship supply drives down charter costs, Jens Martin Jensen, chief executive officer of the Hamilton, Bermuda-based company’s management unit, said by phone today.”

The reason for the charter rate crunch: plunging rates. “Crude rates remain in the doldrums,” RS Platou Markets AS, an Oslo-based investment bank, said by e-mail today. VLCCs earned $17,000 a day on average in the first quarter, down 32 percent from a year earlier, it said.  Fredriksen split Frontline Ltd. in two in December 2011, forming Frontline 2012 to withstand a slump in returns that put the original company at risk of running out of cash. Frontline Ltd.’s shares fell to the lowest since May 1999 last month and slumped 95 percent since the end of 2007.

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If energy demand is down, the global economy is simply not producing.

David Stockman’s new book points out the real weakness in the retail sector:

Even the tepid post-2008 recovery has not been what it was cracked up to be, especially with respect to the Wall Street presumption that the American consumer would once again function as the engine of GDP growth. It goes without saying, in fact, that the precarious plight of the Main Street consumer has been obfuscated by the manner in which the state’s unprecedented fiscal and monetary medications have distorted the incoming data and economic narrative.

These distortions implicate all rungs of the economic ladder, but are especially egregious with respect to the prosperous classes. In fact, a wealth-effects driven mini-boom in upper-end consumption has contributed immensely to the impression that average consumers are clawing their way back to pre-crisis spending habits. This is not remotely true…

Stockman points out that the “recovery” only exists in the higher earners – which is no surprise as they are less vulnerable to downturns – but a very narrow “recovery” is really no recovery at all:

That the consumption party is highly skewed to the top is born out even more dramatically in the sales trends of publicly traded retailers. Their results make it crystal clear that Wall Street’s myopic view of the so-called consumer recovery is based on the Fed’s gifts to the prosperous classes, not any spending resurgence by the Main Street masses.

The latter do their shopping overwhelmingly at the six remaining discounters and mid-market department store chains—Wal-Mart, Target, Sears, J. C. Penney, Kohl’s, and Macy’s. This group posted $405 billion in sales in 2007, but by 2012 inflation-adjusted sales had declined by nearly 3 percent to $392 billion. The abrupt change of direction here is remarkable: during the twenty-five years ending in 2007 most of these chains had grown at double-digit rates year in and year out.

After a brief stumble in late 2008 and early 2009, sales at the luxury and high-end retailers continued to power upward, tracking almost perfectly the Bernanke Fed’s reflation of the stock market and risk assets. Accordingly, sales at Tiffany, Saks, Ralph Lauren, Coach, lululemon, Michael Kors, and Nordstrom grew by 30 percent after inflation during the five-year period.

The evident contrast between the two retailer groups, however, was not just in their merchandise price points. The more important comparison was in their girth: combined real sales of the luxury and high-end retailers in 2012 were just $33 billion, or 8 percent of the $393 billion turnover reported by the discounters and mid-market chains.

Mr. Toad’s Wild Ride is just about over.

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Noted investor and financial newsletter publisher, Marc Faber, says that not even gold can save us from what is coming.

8 thoughts on “Mr. Toad’s Wild Ride…

  1. David Stockman’s analysis has embedded within it the rhetoric and assumptions of Class Warfare….

    “..Their results make it crystal clear that Wall Street’s myopic view of the so-called consumer recovery is based on the Fed’s gifts to the prosperous classes, not any spending resurgence by the Main Street masses…”

    Masses….a Direct Marxist term.
    And the only Gifts given by the Fed are to those LARGE Investment Banks that place correspondly Large bets on the Market with “FREE” Money ….all on the shoulders of the American Taxpayer…..including those who pay 70% of all Income taxes and Medicare ( which is almost 3 % of Gross )….who is responsible for paying BACK all that FREE money.

    Incidently Not EVERY Bank is enjoying this new found Fed-induced Prosperity………Those banks that are just happen to be the Founding Member Banks which hold the Majority Stake-holder positions in the Federal Reserve itself……But we probably could’ve guessed that.

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