Here we go again. The dying legacy media will continue to support the status quo, who provide their dwindling advertising revenue, by papering over the truth with platitudes, lies, and misinformation. I have been detailing the long slow death of retail in America for the last few years. The data and facts are unequivocal. Therefore, the establishment and their media mouthpieces need to suppress the truth.

They spin every terrible report in the most positive way possible. They blame lousy retail results on the weather. They blame them on calendar effects. They blame them on gasoline sales plunging. That one is funny, because we heard for months that retail spending would surge because people had more money in their pockets from the huge decline in gasoline prices.

September retail sales were grudgingly reported by the Census Bureau this morning and they were absolutely dreadful. This followed an atrocious August report. The MSM couldn’t blame it on snow, cold, flooding, drought, or even swarms of locusts. So they just buried the story in their small print headlines. The propaganda media machine had nothing. They continue to spew the drivel about a 5.1% unemployment rate as a reflection of a booming jobs market. If we really have a booming jobs market, we would have a booming retail sector. The stagnant retail market reveals the jobs data to be fraudulent. The 94 million people supposedly not in the job market can’t buy shit with their good looks.

Despite the storyline about consumer austerity being the reason for sluggish spending, the facts prove otherwise. Consumer spending accounted for 68% of GDP in 2008 at the peak. Seven years later it still represents 68% of GDP. The difference is the spending has shifted dramatically towards services since the Wall Street created financial crisis. Spending on services has grown by 31% versus 20% for goods since 2008. Guess what has caused that surge?

OBAMACARE

Spending on healthcare has skyrocketed for the average person. Rent, taxes, utilities and educational expenses have all exploded higher. Meanwhile, real median household incomes are 7% lower than they were in 2008. They are 7% lower than they were in 2000 and equal to the level of 1989. And the bubble headed bimbos on CNBC can’t understand why retail sales aren’t booming? Did they get their journalism degrees from the University of Phoenix or Trump University?

Let’s dig into the data for some shits and giggles. First off, you need to realize how bad it really is when you consider US automakers are essentially giving away vehicles to anyone who can fog a mirror, as long as they are willing to obligate themselves into never ending debt enslavement. The average amount financed of $27,000 and the average length of loan of 65 months are both record highs. As the automakers get more desperate by the day, 7 year 0% loans are now becoming the norm. Dealer incentives in the thousands proliferate. And subprime auto loans now constitute over 20% of all sales. The pace of subprime auto loans has more than doubled the pace of prime loans since 2010.

The Fed, Treasury and Wall Street decided auto sales would be the tonic to cure our economic ills, so they opened up the debt floodgate to get everyone and anyone into a new vehicle. They needed booming auto sales to provide the appearance of economic recovery. So, while overall consumer expenditures increased by 21% since 2010, auto loan debt grew by an astounding 41%. An this is just the debt side of the equation.

Over 27% of all vehicle “sales” are actually leases. Calling a three year rental a car sale stretches the concept of sale to the limits. Anyone who finances a car over seven years or leases a car, can never escape the chains of monthly payment debt. They will always be underwater, just the way Wall Street likes it. The proof these “strong” auto sales are just another debt based scheme are the non-existent profits of automakers and stock prices at 2010 levels. If auto sales are so healthy why would GM stock be down 18% since 2013 and Ford stock down 14% in the last year?

If you strip out the debt financed auto bonanza, retail sales are pitiful on a monthly and annual basis. I thought the later Labor Day was the reason for poor August sales. Maybe kids didn’t go back to school this year. The categories with NEGATIVE monthly sales was immense: Electronics & appliances (what about that housing boom), Building materials & garden equipment, Food & beverage, Gasoline stations, General Merchandise (Wal-Mart), Misc stores, Nonstore (Amazon). Overall, retail sales excluding autos was down 0.3% over the prior month. August sales were down 0.1% over July. The news just gets worse and worse as the government reports lower and lower unemployment. A fascinating dichotomy.

The annual and year to date figures are even more disturbing. The annualized and year to date numbers show 0.8% to 1.2% increases. If you believe your government that there is no inflation (Social Security recipients will get a 0% increase in their benefits next year – should do wonders for retail sales), then those pitiful increases are valid. If you live in the real world where your costs to live are going up by 5% or more, real retail sales are negative. The way to figure out who is lying is to look at the profits of retailers. They are plunging, so shockingly the government is lying about inflation.

Retail sales have missed the expectations of highly paid Wall Street economists 7 out of the last 10 months and 10 out of the last 15 months. But they guarantee sales will be strong next month. Maybe they should double seasonally adjust retail sales like they did GDP because it gets cold in the winter. How could the retail sales be so pitiful when the unemployment rate has fallen from 8.9% to 5.1% over the same time frame? Maybe someone could ask Obama at his next press conference.

The fact of the matter is that year over year retail sales at these levels only happen during recessions. It’s really that simple. Without the crutch of subprime auto loans and student loan debt being spent by pretend University of Phoenix students on iGadgets, fitbits, hookers and blow, this economy would already be in free fall.

Look no further than what happened to Wal-Mart today for confirmation we are in the midst of a worldwide recession, if not depression. Their stock fell by 10%, the largest one day loss in their history as a public company. Their stock is down 30% this year.

Make no mistake about it, Wal-Mart is a global retailer whose annual sales dwarf the GDP of most of the countries on the planet. They announced flat revenue for the current year and slashed next year’s earnings expectations by 12%. As usual, they blame external factors for their failures. The strong dollar seems to be the excuse de jour among the multi-national corporations who rule the globe. If they didn’t want to deal with currency risk, they shouldn’t have gone global. It’s a cost of doing business, not an excuse.

I found it amusing that Marketwatch had their headline as Wal-Mart to Buyback $20 Billion of Stock, rather than reporting that Wal-Mart’s profits are crashing by billions. The propaganda machine just doing their job. Every clueless highly educated CEO of floundering corporate behemoths follows the exact same game plan. Borrow money as your profits are in decline to buyback your stock near record highs to give the appearance that EPS is growing. If you can’t make profits, fake them. At least the executives will get their million dollar bonuses while announcing more layoffs. That always delights Wall Street.

All economic indicators are flashing red and warning of recession. Retail sales, that account for two thirds of economic activity, are falling. Corporate profits are plunging. Middle class Americans haven’t seen their household income rise since 1989. The last two employment reports were horrific. The number of� job layoff announcements by corporations is up 36% year to date and has already exceeded the total for 2014.

The only people who refuse to acknowledge recession reality are the Wall Street hucksters, looking to fleece a few more muppets before their party is over. They’ve created a short covering rally, despite the awful economic news, ridiculously high valuations, record levels of margin debt, and a public who left the markets years ago. Rigging the markets, utilizing free money from the Fed, producing fake profits through government sanctioned accounting fraud and using high frequency trading machines to manipulate the market can only get you so far.

Propaganda and lies can’t stop this recession. The Fed never took their foot off the gas, so we are headed for the cliff at 100 miles per hour. I wonder what happens next.

For over 3 years we have pointed out�that the�surging youth unemployment�was Europe's (if not the world's) scariest chart, because the last thing Europe needs is a�discontented, disenfranchised, and devoid of hope youth�roving the streets with nothing to do, easily susceptible to extremist and xenophobic tendencies:�after all, it must be "someone's" fault that there are no job opportunities for anyone. Well,�as Bloomberg reports,�The�World Bank�has an unsettling message for young people around�the globe: unless we create 5 million jobs a month, the situation is going to get worse.

As The World Bank notes,�Unemployment in any form is a drag on an economy and society.

It undercuts productivity, spending, and investment, stunting national growth. It�contributes to inequality and spurs social tension. Joblessness and inactivity and the failure to tap into the economic aspirations and resources of young people carry an even higher price.

As prospects dwindle,�many face social exclusion, or see their emotional, mental, or physical health deteriorate.

...

Young people account for roughly 40 percent of the world’s unemployed and are up to four times more likely to be unemployed than adults.

...

When young people are not fully participating in the labor force or are NEETs, governments forgo tax revenue and incur the cost of social safety nets, unemployment benefits and insurances, and lost� roductivity. Businesses risk losing a generation of consumers.�Social costs are ever mounting as well. The Arab Spring and subsequent youth-led uprisings in many countries, along with the rise of economic insurgency and youth extremism,�demand that we explore the links between economic participation, inequality, and community security, crime, and national fragility through a lens focused on youth. What we see is a generation in economic crisis.

Over the next decade, a billion more young people will enter the job market—and only 40 percent are expected to be able to enter jobs that currently exist.�The global economy will need to create 600 million jobs over the next 10 years: that’s 5 million jobs each month simply to keep employment rates constant.

In other words, even with that 'growth' we are going nowhere!!

As Bloomberg reports,

The youngest workers have been hit hardest by�the financial crisis�and the global recession of the last decade because they often held the�temporary jobs, which offer less protection.�The youth unemployment rate is projected to be 13.1 percent in 2015, compared with 4.5 percent for adults, according to the�ILO.

Global employers are looking�not only for technical and academic skills, but also such qualities as being open, responsible or organized, ...Young workers�are often either overqualified or underqualified for their jobs, it said.

"In emerging economies that are progressively more service-based, employers find a workforce population that lacks necessary skills," the report�said.�"Elsewhere, the problem is that many of the unemployed are highly educated but the market demands different competencies or more technical or vocational skills."

At stake is the well-being of the entire global economy.�Without an income, millions of young people slump into�poverty. By delaying their entry into the workforce or accepting low-paying jobs, many limit their lifetime earning potential. When young people don't work, governments don't get the tax revenue and businesses fail to gain customers.

"Social costs are ever mounting as well,"�the report�said, citing youth-led uprisings in many Arab countries and the rise of economic insurgency and youth extremism.�"What we see is a generation in economic crisis."

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Full World Bank Report below...

Toward Solutions for Youth Employment Full

Toward Solutions for Youth Employment Full

Since�inception in June 1998, UBS' Managed High Yield Plus Fund survived through the dot-com (and Telco) collapse and the post-Lehman credit carnage but, based on the press release today, has been felled by the current credit cycle's crash. After 3 years of trading at an increasingly large discount to NAV, and plunging to its worst levels since the peak of the financial crisis,�the board of the Fund has approved a proposal to liquidate the Fund. While timing is unclear, this is the worst case for an increasingly fragile cash bond market as�BWICs galore are set to hit with "liquidty thin to zero."

Having survived 17 years...

It's Over...�(as The Fund Statement reads):

Managed High Yield Plus Fund Inc. (the "Fund") (NYSE:HYF) announced today that the Board of Directors (the “Board”) of the�Fund has approved a proposal to liquidate the Fund�in 2016, subject to shareholder approval.

After careful deliberation and a thorough review of the available alternatives, and based upon the recommendation of UBS Global Asset Management (Americas) Inc. (“UBS AM”), the Fund’s manager, the Board has determined that liquidation and dissolution of the Fund is in the best interests of the Fund.�A proposed plan of liquidation will be submitted for the approval of the Fund’s shareholders at a special shareholders meeting of the Fund, which will be scheduled to be held in April 2016. If the shareholders approve the proposed plan, the liquidation and dissolution of the Fund will take place as soon as reasonably practicable, but in no event later than December 31, 2016 (absent unforeseen circumstances).

Further information regarding the liquidation proposal, including the plan of liquidation, will be included in the proxy materials that will be mailed to the Fund’s shareholders in advance of the shareholders meeting.

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This is a nightmare for the corporate credit market,�where, as we noted previously�"liquidity is thin to zero."...

...discussing illiquid�corporate�credit markets is easier if you find yourself among polite company. You see, the lack of liquidity in the secondary market for corporate bonds is a somewhat benign discussion because although it unquestionably stems from a noxious combination of regulatory incompetence and irresponsible monetary policy, myopic corporate management teams and the BTFD crowd, not to mention ETF issuers, have also played an outsized role, so there’s no need to lay the blame entirely on the masters of the universe who occupy the Eccles Building and on the "liquidity providing" HFT crowd that’s found regulatory capture to be just as easy as frontrunning.

But while explanations for the absence of liquidity vary from market to market, the response is becoming increasingly homogenous. Put simply:�market participants are simply moving away from cash markets and into derivatives. Where market depth has disappeared, it’s become increasingly difficult to transact in size without having an outsized effect on prices. This means that for big players - fund managers, for instance - selling into ever thinner secondary markets is a dangerous proposition. And not just for the manager, but for market prices in general.

In Treasury markets, traders have�turned to futures�to mitigate illiquidty...�

...while corporate bond fund managers�utilize ETFs and other portfolio products�to avoid trading the underlying assets...

With the stage thus set,�Bloomberg has more�on the move to smaller trades and cash market substitutes:

Sometimes less is more. At least according to investment managers trying to navigate Europe’s credit markets.

TwentyFour Asset Management capped a bond fund to new investors at 750 million pounds ($1.2 billion) and JPMorgan Asset Management, which is marketing a 128 million-pound fund, said smaller investments are more flexible in a sell-off.�Other managers are also limiting the size of their trades and using derivatives to avoid getting trapped in positions.

It’s become more difficult to buy and sell securities as Greece’s financial crisis curbs risk taking and dealers scale back trading activity to meet regulations introduced since the financial crisis. The Bank for International Settlements warned of a "liquidity illusion" in June because bond holdings are becoming concentrated in the hands of fund managers as banks pull back.

"Liquidity is generally poor in corporate bond markets and in the U.K. market it’s thin to zero,"said Mike Parsons, head of U.K. fund sales at JPMorgan Asset Management in London. "You don’t want to be in a gigantic fund where there’s potential for a lot of investors rushing for the exit at the same time. Smaller funds are more nimble."

"Without enough strong liquidity, it’s hard to execute bond trades in sufficient size or price to move portfolio risk around quickly or cheaply,"�he said. "The bigger the position, the harder it is to find enough liquidity to sell it or buy it."

Liquidity in credit markets has dropped about 90 percent since 2006, according to Royal Bank of Scotland Group Plc. That’s because dealers are using less of their own money to trade as new regulation makes it less profitable.

Euro-denominated corporate bonds got an average of 5.3 dealer quotes per trade last week, up from 4.5 recorded in January and compared with a peak of 8.8 in 2009, according to Morgan Stanley data. That’s based on dealer prices compiled by Markit Group Ltd. for bonds in its iBoxx indexes.

Liquidity is especially bad in the U.K. corporate bond market, which is being abandoned by companies looking to take advantage of lower borrowing costs in euros and investors seeking securities that are easier to buy and sell.

NN Investment Partners said it seeks to manage difficult trading conditions by diversifying positions and capping trade size.�The Netherlands-based asset manager avoids owning large concentrations of a single bond and uses derivatives such as credit-default swaps or futures that are easier to buy and sell, said Hans van Zwol, a portfolio manager.

"We really want to stay away from positions we can’t get out of," he said.

The conundrum here is that the more reluctant market participants are to venture into increasingly illiquid cash markets, the more illiquid those markets become.

And here are the fund's largest holdings...

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Of course, this should not be a total surprise,�in light of the near-record up/downgrade ratio...

Credit-rating firms are downgrading more U.S. companies than at any other time since the financial crisis,�and measures of debt relative to cash flow are rising.

Standard & Poor’s Ratings Services�downgraded U.S. companies 297 times in the first nine months of the year, the most downgrades since 2009,�compared with just 172 upgrades.

Deteriorating fundamentals...

U.S. companies have increased borrowing to levels exceeding those just before the financial crisis, as firms pursue big acquisitions and seek to boost stock prices by buying back shares.�According to one metric, the ratio of debt to earnings before interest, taxes, depreciation and amortization for companies that carry investment-grade ratings, meaning triple-B-minus or above, was 2.29 times in the second quarter. That’s higher than the 1.91 times in June 2007, just before the crisis, according to figures from Morgan Stanley.

“We’re seeing more widespread weakness across more industry sectors in the U.S.,”�Ms. Vazza said.�“It’s become broader than just the commodity story.”

“The metrics that you measure health and credit by have peaked a while ago,”�said Sivan Mahadevan, head of credit strategy at Morgan Stanley.�“They are beginning to deteriorate.”

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And as we noted earlier,�the credit cycle has well and truly rolled over...

And no lesser market veteran than Art Cashin is concerned,�What are the signals you are looking for to stay on top in such a market?

I continue to monitor the high yield market and see where that goes. The high yield market has been of some concern of the last several weeks. If that begins to show appreciable weakness than I would think the caution flags stay up.

Charts: Bloomberg

Despite The Fed's best efforts to crush the�business�cycle, the crucial�credit-cycle has reared its ugly headas releveraging firms (gotta fund those buybacks) and deflationary pressures (liabilities fixed, assets tumble) have led to a surging market cost of capital.

As WSJ reports,�softening U.S. corporate fundamentals have been largely overlooked�but the markets for riskier debt have become snarled with rising downgrades and an increase in U.S. corporate defaults indicate�“some cracks on the surface” of the domestic-growth outlook. In fact, in the latest quarter, theratio of upgrades-to-downgrades is its weakest since the peak of the financial crisis in 2009.

Falling profits and increased borrowing at U.S. companies are rattling debt markets, a sign the six-year-long economic recovery could be under threat.

Credit-rating firms are downgrading more U.S. companies than at any other time since the financial crisis,�and measures of debt relative to cash flow are rising.

Standard & Poor’s Ratings Services�downgraded U.S. companies 297 times in the first nine months of the year, the most downgrades since 2009,�compared with just 172 upgrades.

Meanwhile, the�trailing 12-month default rate on lower-rated U.S. corporate bonds was 2.5% in September, up from 1.4% in July of last year, according to S&P.

Analysts expect profits at large companies to decline for a second straight quarter for the first time since 2009.

�

U.S. companies have increased borrowing to levels exceeding those just before the financial crisis, as firms pursue big acquisitions and seek to boost stock prices by buying back shares.�According to one metric, the ratio of debt to earnings before interest, taxes, depreciation and amortization for companies that carry investment-grade ratings, meaning triple-B-minus or above, was 2.29 times in the second quarter. That’s higher than the 1.91 times in June 2007, just before the crisis, according to figures from Morgan Stanley.

“We’re seeing more widespread weakness across more industry sectors in the U.S.,”�Ms. Vazza said.�“It’s become broader than just the commodity story.”

“The metrics that you measure health and credit by have peaked a while ago,”�said Sivan Mahadevan, head of credit strategy at Morgan Stanley.�“They are beginning to deteriorate.”

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