I believe that the economy is headed toward a deep recession and that the stock market is extraordinarily overvalued based on unrealistically high expectations for economic output and corporate income…
The above are edited excerpts from an article* by Dave Kranzler (investmentresearchdynamics.com) as posted on SeekingAlpha.com under the title The U.S. Economy: Deep Recession Coming.
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Kranzler goes on to say in further edited excerpts:
Driven by a downturn in private inventory investment, exports and nonresidential fixed investment, the Commerce Department’s Q1 Revised GDP fell from the initial .1% estimated gain to a 1% decline.
Two of the bigger drivers of GDP are retail sales and the housing market…
1. Retail Sales
As you can see from the graph below, retail sales and food service ex-gasoline, are showing that a definitive downtrend has started (source: Calculated Risk, edits are mine):
Furthermore, if you take into account the affect of inflation on the nominal retail sales which the Government estimated at 1.3% in its GDP report, real retail sales expressed in unit volume declined by well over 1%…[In addition,] the Dept of Commerce’s Personal Income and Outlays report for April… showed personal consumption expenditures declined in April by .1% and by .3% after stripping out inflation. If retail sales continued to deteriorate in May from April, it will have an adversely negative effect on the Q2 GDP.
2. Housing Market
…There has been a definitive downtrend in month-to-month sequential sales volume that began in July 2013…The big buy-to-rent institutional investment buyer, which has been the primary driver of home sales and price gains over the last 18 months, has largely withdrawn as a buyer of homes this year. To be sure, the individual “flipper” buyer is still active, although I suspect that segment of demand will begin to fade as new and existing home inventory continues to build and sales continue to decline.
While April new and existing home sales showed seasonal gains from March to April, they both registered declines year over year, with existing home sales down 6.8% and new homes sales down 4.2%. The year-over-year declines have been persistent for several months now. In addition, it is likely that the May existing home sales report released later this month will show a continuing deterioration in the housing market based on the recent Pending Home Sales report …[which] reflects both declining demand despite rising home inventory. With the recent housing market data showing a probable continued slowdown in homes sales, I believe it confirms that the housing component of GDP will likely affect the GDP calculation negatively in Q2.
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…I also believe that auto sales, which have been largely fueled by subprime auto lending will soon start to track negatively month to month on a consistent basis and contribute to further contraction in the U.S. economy.
How to Take Advantage
If you have a bearish view on the economy, I recommend shorting the retail and housing sectors…
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
* http://seekingalpha.com/article/2249803-the-u-s-economy-deep-recession-coming?ifp=0 (© 2014 Seeking Alpha )
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