MACRO WATCH - Q2 2014

TREACHEROUS MARKETS AHEAD

This quarter there are seven videos, (with 130 charts and slides).

Here’s what they cover:

1. Treacherous Markets Ahead. I believe the stock market may be particularly tricky during the rest of this year. Liquidity will shift from being very excessive in the second quarter to being scarce in the third. Therefore, the markets could first experience a boom and then a bust. I also discuss how the Fed is likely to respond.

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2. The Fed & Its Challenges. The challenges that the Fed faces over the short-term, the medium-term and the long-term are very different. Each requires a unique response. The Fed must try to prevent an asset price bubble over the next three months. During the second half of the year, it must attempt to prevent a stock market crash and recession. Over the long run, its challenge will be to continue driving the economy by pushing up asset prices, even after asset prices have become dangerously inflated.

3. Austrian Economics: Right & Wrong. No one explained the role credit plays in creating economic booms and depressions better than the Austrian Economists. In this video, I explain why it is crucial that our generation draws the right conclusions from what they taught. This one’s going to provoke some controversy.

4. What Drives Currencies? Trade imbalances, interest rate differentials, fiat money creation and central bank policy do. I discuss each of these and explain what they tell us about which way the major currencies are likely to move from here.

5. China’s Economic Crisis. China’s economic growth model is in crisis. Export-led growth is coming to an end. Investment-driven growth is unsustainable. Credit-fuelled growth is destabilizing. In this video, I explain why a sharp slowdown in China’s GDP growth is inevitable and what that will mean for the rest of the world.

6. Credit Growth Update. In this age of fiat money, credit growth drives economic growth. This video reviews the latest credit data from the Fed’s fourth quarter Flow of Funds statistics. We find that credit growth is not accelerating and will remain too weak to generate economic growth. That suggests the Fed will have to carry on driving the economy by creating money and pushing up asset prices.

7. Economic Update. The US economy weakened during the first quarter. US imports have stopped growing. The US current account deficit is correcting. In short, the driver of global economic growth has gone into reverse. That explains why the global economy is so weak.

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SMALL BUSINESS HIRING - Small Business Confidence is a Major Problem In America

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SMALL BUSINESS HIRING - Small Business Is The Biggest Employer In America

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FINANCIAL STRESS - Increasing Despite Increases in Net Worth

ITS ABOUT GETTING A REAL JOB -If You Are:

• Outsourced
• Downsized
• Right-Sized
• Merged Out
• Contracted Out
• Put on Part Time or simplyt
• Laid-Off

Finding Work is Bruttle!

ITS ABOUT GETTING A REAL JOB -Finding Work That Pays Enough to Support a Family Is Nearly Impossible

ITS ABOUT BENEFITS - Removing the Safety Net

ITS ABOUT KEEPING A JOB - Part Time Nation

ITS ABOUT HAVING A REAL JOB - Part Time Nation

Structural job change in America.

Employers not investing in employees and Low Paying Part-Time dominating.

Last month's numbers were particularly vivid. The economy added 28,500 temporary-help services jobs, representing 15% of all job gains in March. The number of temp jobs has risen almost 10% in the past year, the greatest increase of any of the 150 categories tracked by the Labor Department.

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WHERE THE JOBS ARE -> GOVERNMENT, HEALTHCARE OR TEACHING

The number of people employed in manufacturing and construction jobs are still 12% and 20% below the pre-recession highs, respectively.

However, the mining and logging industry now employs 21% more workers than it did before the recession, while the education and health industry employs 13% more people, and the business services industry employs 5% more people.

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HOUSING - A Single Family Income Insufficient and In Many Cases Two Is Insufficient

Even Two Middle-Class Incomes Aren’t Enough Anymore To Buy A Median Home 04-07-14 Wolf Richter���www.testosteronepit.com���www.amazon.com/author/wolfrichter VIA ZH

As home prices have soared in cities around the country, sales have cratered. The weather has been blamed, though the weather has been gorgeous in California where sales have crashed too, even in temporary boom town San Francisco. The “lack of inventory” and other excuses have been dragged out as well. In reality, homes have gotten too expensive....

PRIVATE EQUITY, REITS & HEDGE FUNDS

Even for hedge funds, private equity funds, REITs, and other forms of Big Money with access to the Fed’s limitless free juice. They’d become powerful buyers over the last two years, gobbling up vacant homes sight-unseen by the thousands, in order to get them off the closely watched for-sale list and shuffle them over to the ignored for-rent list, where they might languish undisturbed. The hope is that they might rent them out somehow and sell them later at a big fat profit, to the dumb money via a ridiculously hyped IPO. But now their business model has collapsed.

“Prices have gotten to the stage where we cannot buy a house, renovate it, rent it, and still make a reasonable return,”�explained�Peter Rose, a spokesman for Blackstone Group, a private equity giant whose real-estate division, Invitation Homes, has grown in two short years from nothing to the largest landlord in the country with 41,000 rental single-family houses to is name. “There was a moment in time where it made sense,” Rose said.

Not anymore. Blackstone already cut its purchases in California by 90% last year. It wasn’t alone. Another mega-buyer with access to nearly free money, Colony Capital, is doing the same thing. Oaktree Capital is trying to dump its portfolio of 500 homes before prices head south.

“Private capital made a lot of money early, and now they’re starting to pull back,” Dave Bragg, head of Residential Research at Green Street Advisors, told the�LA Times. “Home prices are up significantly, and houses are definitely less attractive.”

With these mass-buyers out of the market, volumes have collapsed to a four-year low, according to Redfin, an electronic real-estate broker that covers 19 large metro areas around the country. Because, let’s face it, who can still afford to buy these homes?

Forget first-time buyers, the crux of a healthy housing market. In February, they�only bought 28%�of the homes, down from 30% a year earlier, down from the three-decade average of 40%, and down from the mid-40% range during good times. That hapless lot has been pushed out of the market a while ago.

And the middle-class household, supported by one earner? Teachers earning on average $69,300 in my beloved state of California, are facing a housing market where the median home�lists for $485,000. With their salary, they can only afford a $260,000 home – or only 17.4% of the listed homes. Where exactly are all these high-income people who’re supposed to buy the remaining 82.6% of the homes? Sad fact: they don’t exist in those large numbers.

In the inland areas, teachers have a better chance for being able to buy a median home. But forget it in the coastal areas. My zany city of San Francisco topped the list: exactly 0% of the homes listed were within reach of a teacher’s salary [read....California Housing Bubble: Now Even Teachers Can No Longer Afford To Buy A�Home].

TWO WAGE INCOME INSUFFICIENT

Turns out, even�two middle-class incomes�aren’t enough anymore for a median home in many cities around the country. Real wages that have stagnated for the last 25 years – thanks to that wondrous elixir of inflation – are now colliding with soaring home prices. Based on non-distressed homes listed on the Multiple Listing Service as of March 30,�Redfin�reports that in 40 large cities, only 10% of the homes are affordable on one median salary. It defined an affordable monthly payment as 28% or less of gross monthly income. And it found that “just 41% of homes currently for sale across 40 US cities are affordable for a family earning two median incomes.”

In San Francisco, where the median home lists for nearly $1 million, and in Santa Ana in Southern Cal, only 7% of the homes were within reach of a family with 2 median salaries. In San Diego 9%, in LA 12%, in Miami 19%, in Denver 23%, in Nassau (Long Island) 24%, in Austin 32%.

There are some cities where the fiasco is less pronounced. For example, in Atlanta a family with two middle-class incomes can afford 59% of the listed homes – but even there, who is going to buy the other 41% that are priced beyond the reach of two middle-class incomes?! The richest 1%? Or people who have to overextend themselves and become house-poor for years to come, assuming that another housing downturn, or a layoff, or an illness doesn’t wreck their homeowner status?

And where the heck are all the high-income people who will buy the median homes when investors, speculators, and PE firms that have become the largest landlords in the country are pulling up their stakes? There aren’t that many high-income people around, and they don’t like to live in median homes. Sales are already heading south. And last time this debacle happened, prices followed soon after. So this is going to be, let’s say, an interesting scenario.

And a direct consequence of the Fed’s policies that engineered an environment where Wall Street can borrow unlimited amounts for nearly free, buy all manner of assets, drive up prices, take huge risks that it then shuffles off at peak valuations to other entities, hopefully to the unsuspecting public via over-priced IPOs, toxic synthetic structured securities of the kind that blew up the banks during the financial crisis, and other shenanigans that end up getting stuffed into conservative-sounding funds that people buy for their retirement.

It starts here: evictions in San Francisco hit the highest level since 2001, when the dotcom bubble was disintegrating. Everything these days gets benchmarked against the last bubbles: the dotcom bubble that blew up in 2000, the housing bubble that blew up in 2007. Read....�Bay Area Home Sales Plunge To 2008 Levels, Prices�Soar

RETAIL CRE - Getting Worse Fast

Retail Tsunami: 16 Major Chains Closing More Stores 04-04-14 Daniel Jennings

The economy appears to be in far worse shape than the major media outlets would have us believe.

In fact, if you want to see how bad the economy really is, simply visit your local shopping center. There you will find that headlines about a retail tsunami – as CNBC put it � are re accurate.

Unfortunately, it could be just the tip of the iceberg. Recent news stories show that American retail is in a desperate situation and the entire economy is on very shaky ground.

Here are 16 companies that have closed stores or will close stores soon:

• Office supply company Staples has announced plans to close 225 stores by 2015, which is about 15 percent of its chain. Staples already closed 40 stores last year. Industry analysts expect Staples' main competitor, Office Depot, which bought OfficeMax last year, to announce its own round of store closings soon.
• Radio Shack has announced plans to close 20 percent of its stores this year, which is as many as 1,100 stores. The company, which operates around 4,000 stores, reported that its sales fell by 19 percent last year.
• Albertsons closed 26 stores in January and February according to Supermarket News. Analysts expect many more Albertsons could soon be shuttered because Albertsons owner hedge fund Cerberus Capital Management just bought Safeway Inc. Some Safeway stores could soon shut down as well.
• Clothing retailer Abercrombie & Fitch is planning to close 220 stores by the end of 2015. The company is also planning to shut down an entire chain it owns, Gilly Hicks, which has 20 stores, 24/7 Wall Streetreported.
• Barnes & Nobles is planning to shut down one third of its stores in the next year: about 218 stores. The chain has already closed its iconic flagship store in New York City.
• J.C. Penney is closing about 33 stores and laying off about 2,000 employees.
• The Record newspaper in New Jersey reported that Toys R Us has plans to close 100 stores.
• The Sweetbay Supermarket chain will close all 17 of the stores it operates in the Tampa Bay area, The Herald Tribune newspaper reported. Many of the stores might open as Winn-Dixie Stores. Sweetbay closed 33 stores in Florida last year.
• The entire Loehmann's chain of discount clothing stores in the New York City area shut down. Loehmann's once operated 39 stores, The New York Times reported, and was considered an institution by generations of New Yorkers.
• Industry analyst John Kernan told CNN that he expects Sears Holdings, which owns both Sears and Kmart, to close another 500 stores this year. Sears has already shut down its flagship store in Chicago.
• Quiznos has filed for bankruptcy, USA Today reported, and could close many of its 2,100 stores.
• Sbarro which operates pizza and Italian restaurants in malls, is planning to close 155 locations in the United States and Canada. That means nearly 20 percent of Sbarro's will close. The chain operates around 800 outlets.
• Ruby Tuesday announced plans to close 30 restaurants in January after its sales fell by 7.8 percent. The chain currently operates around 775 steakhouses across the US.
• An unknown number of Red Lobster stores will be sold. The chain is in such bad shape that the parent company, Darden Restaurants Inc., had to issue a press release stating that the chain would not close. Instead Darden is planning to spin Red Lobster off into another company and sell some of its stores.
• Ralph's, a subsidiary of Kroger, has announced plans to close 15 supermarkets in Southern California within 60 days.
• Safeway closed 72 Dominick's grocery stores in the Chicago area last year.

The Obama administration may tell Americans the economy is recovering, but the retail industry �and economic data �say something very different.

- Charts of Note

SMART MONEY

EBITDA - CASHFLOW

VALUATIONS - TECH PE

JAPANESE CARRY TRADE WORRIED

Japanese Carry Trade reacting to accelerated JGB selling of -Y2.5T in FY 2013 with Y351B in March alone!

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