“It’s different than anything I’ve seen” - Bob Nardelli

Former Home Depot CEO Bob Nardelli issued a grim warning over the U.S.'s "very complex" economy, cautioning consumers that middle market companies are under "tremendous pressure."

Mr. Nardelli should know a thing or two about our economy after his tenure of running such a huge company which is in the middle of our economy in so many ways.

"I think we're going to see a lot of bankruptcies. Like Bed, Bath and Beyond. We got Walmart not only laying people off, but closing stores. We got Accenture laying people off. We got Amazon closing distribution centers. So I think there's a tremendous-mixed message," Nardelli said during an appearance on "Cavuto: Coast to Coast."

According to UBS analysts, more than 50,000 retail locations could permanently shut their doors over the next five years. Those closures would cut the current U.S. store count of about 940,000 by around 5% by the end of 2027. - Fox Business

This Housing Bubble Is Different: It's Much More Precarious

There are many reasons why I have been concerned about the direction of our economy, and the investment markets, for some time. The great insight shared by Charles Hugh Smith offers clear insight into his take on our current status, and where he thinks we could be very soon.

All speculative bubbles share certain traits: the abandonment of caution, the euphoria of seemingly endless gains, the eventual re-connect with reality (i.e. the bubble pops) and bubble symmetry as the waterfall decline mirrors the euphoric ascent.

At the same time, the specific origin and nature of each bubble is unique to its era and circumstance. The housing bubble that popped with such devastating consequences in 2007-08 was the result of the vast expansion of subprime mortgage lending which began as a progressive goal of expanding home ownership to the lower-middle class by lowering credit standards.

This ideal quickly morphed into the explosive growth of entire industries exploiting this new pool of subprime borrowers via outright fraud: no-document loans (a.k.a. liar loans), negative interest mortgages, interest-only mortgages, etc., all fueled by the packaging of guaranteed-to-default mortgages in mortgage-backed securities fraudulently veneered with a low-risk rating issued by captured ratings agencies.

The rock that starts the landslide doesn't have to be all that large. The entire subprime mortgage sector was a relatively modest percentage of the mortgage market and a tiny slice of the global financial system, but it is the nature of bubbles to be a pyramid house of cards in which the entire bubble is based on debt expanding on the supposedly solid foundation of rapidly rising collateral: the McMansion that sold for $300,000 a few months ago has doubled in value and now supports a $500,000 mortgage.

The delighted speculator takes the "free money" $200,000 and buys another McMansion, and so on, pyramiding the first house into a mini-empire of homes, all gaining value as the bubble expands. This virtuous feedback expands housing valuations, collateral and debt that is deployed to buy more homes.

Then the feedback loop reverses. Once the bubble pops, valuations decline, collateral diminishes and eventually all the mortgages are underwater, i.e. unsupported by collateral. At the same time, income generated by the assets declines, making it difficult for the owner to service the debt, which perversely, remains the same as valuations plummet.

This time around, the source of the bubble isn't subprime buyers, it's wealthy investors and corporations using "excess savings" and easy credit to snap up homes and rental apartments as "safe" places to park their excess capital. Excess savings is in quotes because the "excess" money isn't savings per se, it's unearned gains generated by buying assets long ago at low rates of interest. As valuations soared, the wealthy owners of capital have been "burdened" with the task of where to park all these massive gains.

In hot real estate markets, wealthy buyers snapped up properties to hold for capital appreciation. Since tenants are potential sources of problems, these absentee owners prefer not to bother renting out the flat or house; they purposefully leave it empty since they don't even need a rental income to cover the expenses.

I invite you to read the entire article from Charles Hugh Smith.

Traders Still Getting Jobs and Inflation Wrong

After the March employment report met expectations and statements by the new governor of the Bank of Japan suggested he intends to maintain the country's ultra-loose monetary policy, the dollar rose and gold fell on Monday. Peter demonstrates in his podcast how traders still misjudge inflation and employment.

“So, the only reason we met expectations was because these governments went on a hiring spree. But there’s a big difference between private sector jobs and government jobs. Private sector jobs, by and large, are productive because they’re created by for-profit enterprises that wouldn’t be hiring people unless doing so was making their businesses more profitable, and therefore they are adding some benefit to the economy based on their contribution to generating profits. Profits are a good thing because it means you are adding value to your customers.”

“The more government bureaucrats are on the job, the less productive everybody else is because what they’re doing is regulating and trying to micromanage and getting in the way of the productivity of the private sector. So, the more government workers we have, the worse off we are.”

The “Perma Bulls”

In this article by David Stockman, he criticizes the perma-bull mentality prevalent among investors and analysts, arguing that it is based on faulty assumptions and a lack of historical context. Stockman explains that the persistent belief in an ever-rising stock market is fueled by several factors, including artificially low interest rates, the proliferation of exchange-traded funds (ETFs), and the overuse of stock buybacks by corporations. He claims that this mentality has caused investors to ignore warning signs, such as soaring debt levels, political instability, and economic imbalances, all of which could potentially lead to a severe market correction.

Stockman further emphasizes that the perma-bull perspective ignores the cyclical nature of financial markets, which have historically experienced both bull and bear phases. He warns that the current market euphoria, built on a foundation of cheap credit and financial engineering, is unsustainable and will inevitably come to an end. By disregarding the risks, investors may be setting themselves up for significant losses when the market finally experiences a downturn.

And thus, the need for safety.

Hiding your head in the sand will not make the reality of our economic challenges go away.