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About Me


Darren Winters is a self made investment multi-millionaire and successful entrepreneur. Amongst
his many businesses he owns the number 1 investment training company in the UK and Europe.
This company provides training courses in stock market, forex and property investing and since
the year 2000 has successfully trained over 250,000 people.


Friday 19 December 2014

US Recovery: Pieces of The Jigsaw Are Missing


Who doesn't like a good Hollywood movie, there's a villain, a hero, a fight, the hero wins and there's always a happy ending. Even though the plot is fiction it can absorb us for hours, unless it is too surreal, then we lose interest, switch the channel, or do something else. 

About this US economic recovery, there’s something wrong with the plot, a few important pieces of the jigsaw are missing.

There are a number of holes with the US recovery story.

Firstly, if the US economy is growing, that typically means US oil inventories should be falling, but the reverse is happening. Usually an increase in economic activity means more demand for energy to make products and move people or said products around. Moreover, demand for oil making products should also be rising. The list of products made from petroleum is endless, running into thousands. From the keyboard I’m using, made from petroleum, to over 100 litres of oil in just four simple tyres fitted to an electric car (It's fantasy when environmentalists talk about doing away with petroleum for energy and materials, a modern world could not function without the black gold). So a buoyant economy should also mean falling oil inventories. Instead they are rising, which doesn't support the US recovery story. 

Then there is the 321,000 jobs added in November and the unemployment rate at 5.8 percent. The impression we get from the data is that jobs are plentiful. That should then mean that labour participation rates should be high, but it is not even near that level. Labour participation rates are at 30 year lows of 62.8 percent. Since 2007 the number of working age Americans has risen by 17 million, while the number of employed has risen by less than 1 million. So how can the unemployment rate remain the same? 

If the employment environment were as good as the data indicates, then more people would be entering the labour market. Instead almost 14 million working age Americans have left the labor force since 2007. Within the last 12 months that figure rose to 1.2 million, leaving the labour market in an economy which is recovering? Moreover, median household incomes should be rising in a buoyant economy, where 8 million jobs have been created since 2010, right? 

Wrong! Median household income has fallen by 2.3 percent.

A buoyant economy must also mean a rise in capital investments, in 2000 the figure amounted to 20 percent of GDP, today that figure is just 16 percent. 

The US consumer spending accounts for more than half the GDP, which is 68 percent. So how can GDP be rising when consumer real income is falling? 

Okay, so a bulk of that GDP growth must be coming from public expenditure. Indeed, the figures have been juiced-up by a recent surge in military expenditure, a $69 billion increase in government spending, with the majority going to the military industrial complex. Got to fight those bad boys ISIS! 

Fair enough, fight the good fight, you know that kind of stuff, but then why have they been air dropped with US arms? Oh, it gets too confusing!

Back to the economic recovery. 

So then we should be seeing robust spending right?

After all, we are being constantly told by captains of industry that the future is looking bright. 

However, on main street we get another picture. Black Friday weekend sales collapsed by 11% versus the previous year. As the pundits tried to blame it on on-line sales (10% of total retail sales), Cyber Monday also proved to be a dud. 

Confident consumers usually spend more on their credit cards, nevertheless, credit card balances still $138 billion below where they were in 2008? If all these new jobs are being created why is credit card debt lower than it was in mid-2010? 

Then there is the increase in spending on food stuffs and restaurants, which is due to food inflation. Meanwhile, discretionary spending at furniture, electronics, and sporting goods stores remains stagnant.

Just look at the sales of department stores, they continue to fall. Sears and JC Penney teeter on the verge of bankruptcy. Delia’s is liquidating and Radio Shack isn’t far behind. The major chains have completely stopped building new stores and online growth is stalling as states implement sales taxes. 

What about the great housing recovery with a 24 percent rise in home prices, since 2012? Surely, that is impressive. But most of the buyers are Wall Street hedge fund/Federal Reserve scheme, with the aim of elevating prices and making the Wall Street balance sheets look less insolvent.

The percent of first time home buyers remains near record lows, mortgage applications to purchase homes are at 1995 levels and 30% below 2009 recession lows. 

What about the automobile sector? It’s firing on all cylinders with annual sales of 16.4 million, the highest since 2006. But selling automobiles to people with little or no means of paying the loan back isn't a good business model. It is like issuing more bad debt to boost the GDP figures. Over 31% of all new auto loans this year were to subprime borrowers. Auto loan debt is at an all-time high of $950 billion, up 33% since 2010 when the Fed. There are 65 million auto loans outstanding, and the average debt now stands at $17,352. Enter the auto sub-prime burst? 

If the auto business were booming then why have GM profits fallen from $9.2 billion in 2011 to $5.4 billion in 2013, and on course to fall to $4 billion in 2014? 

Why is their stock 25% below its 52 week low? 

But then there’s that wild card, low oil prices, which is estimated to save each household $368 per year. If necessities, like groceries and healthcare continue rising most of the benefit will go towards paying the grocery bills and health care costs. It might be a zero sum game with no new consumption occurring. 

There is something wrong with the US recovery story…



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