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“No matter how you slice it, the U.S. is mired in an Incomplete Expansion.”

Gregory Miller declares services are fine; however, the production of goods is in recession. We have been looking at a historic 2% recovery. Since 2012, we are on the verge of accelerating upward towards a 3% economy but it hasn’t happened yet because our entire economy is split along different lines and planes. Services production is fine and can sustain our entire economy; while goods production is in recession. Production of goods came back early, but have since dropped. Mining is down; construction is accelerating on residential and commercial side of the business, and manufacturing is in recession.

Overall, the U.S. is stable, but the rest of the world is on “eve of destruction”.

This is our first ever “non-home” sales expansion; typically housing is the first to recover. Corporate profits decline is out of sync with domestic fundamentals. Over the last four quarters, profits declined three times. Domestic profits fell .9% and global profits fell 2.7%. This is the weakest non-recession profit period in the past 15 years.

We are producing goods, but no one is buying them. This has led to an increase in inventory. Inventory movement is the most powerful element to predict recession/correction. The inventory is significantly smaller now without going negative, we must make the correction. Secondly, The Federal Reserve raised rates, but the market did not. This signals that the market doesn’t believe higher interest rates are real. The Federal Reserve still doesn’t have a grip on anti-deflation promise. Only one time in history has rates been 1%. Inflation numbers are closer to danger level when on low side vs. high side. We expect rates to go higher.

The most dangerous risk is consumer spending. 2% is not healthy as consumer spending should grow by 4%. Jobs grew, so did incomes, but spending did not – except for cars, consumers are buying automobiles but have recently slowed down. We had the worst holiday spending season since 2008 – real income: expansion was 1.2%; Last six months 3.5% but not as shiny number as one might think. The volume, wage increases, higher wages paid solely went to incomes above $75,000.

As for oil,  “Explain to me how a major cost element affecting every consumer, every household, every small business, every corporate giant, and every global partner wants can be bad?” The world as we know it began in 1985, it was the year that we took control of our energy spending. OPEC started a series of self-destructive arguments pertaining to ramping up crude oil prices. In 1985, oil drilling shifted to technological processes out of the ground and in the Gulf of Mexico. Moving oil from one place to another became easier and it opened up supply significantly. Since 2010 (and really since 2015), prices continue to drop because of advances in technology. The U.S. is the biggest producer of oil globally. Oil will be low for quite some time, but will likely be back to $50/barrel soon.

As for home sales, this is the first time we’ve had a recovery period with housing sales as weak as they are.
Home sales are typically 19% but currently 6.6%. In most residential markets around the country we have too much supply. Housing booms in the upper mid-west have left a lot of vacancy. Right now, affordability is strong but mortgage availability is weak.
US fundamentals are generally sound, but weak right now due to manufacturing, home sales, and exports virtually in their own private recessions. The service sector is sufficient to keep us rolling, but volatility is disconcerting. In a world with global stagnation and a corporate sector with such strong designs on carving market share from the rest of the world, even to the detriment of servicing domestic demand, makes this process a lot more concerning. The consumer side is hanging on by its nails. We need to see the wage number continue to move higher and spread down income continuum.
In spite of that, the U.S. is the most self-reliant economy on the globe and the dominant energy producer. If anything is built or offered for sale, the U.S. will make it or do it. We are capable of sustaining this on our own for some period of time; however, it would help if Eurozone and China’s economy picked up and restored their GDP numbers.
Why didn’t the increase in money supply, supported by quantitative easing, generate good inflation?

The Federal Reserve has many ways to boost the economy. Quantitative easing is not new, we have done it before. It’s different from fiddling with short term interest rates. The difference is the people who have access to the impact, and with quantitative easing attached, it comes out of The Federal Reserve and into people who own bonds sequestered in a small part of the economy. Banks sold bonds, took in cash and did nothing. When banks sell bonds to raise cash they are deliberate on what they will use it for. Before quantitative easing, corporate America had a sizable pile of retained earnings. If they wanted the investment for the company they would have started it anyway. The Federal Reserve raised capital by going to the bank – when The Federal Reserve works on the short-end and lowers cost funds it makes it easier for banks to price loans that can grow small business. When small business raises capital they spend it now, they aren’t taking on debt. The primary reason is the difference in the transmission mechanism from the issuance of the new stimulus to the multiplier of the first taker who is spending it and letting it work its way into the economy.

Jason McCarthy, CFO of Arbor Pharmaceuticals asked, “As the National Debt continues to grow when does the debt brace?”
Right now total debt is $20 Trillion. 70% of all government debt of this country belongs to the U.S. A large chunk of it belongs to large federal agencies and they aren’t going to do anything with it. It’s an income stream for U.S. consumers. The recipe for hyper-inflation is to print more money and we could do it, it has happened before. A significant number of Chinese investors own 30% of the debt that we don’t. But how are they going to redeem all of the bonds at the same time. Chinese investors aren’t stupid. As soon as they sold debt, sufficient to move the needle and pricing structure – there’s more investors ready to gobble it up.
Carol Kissal, VP of Finance and CFO of Emory University asked “Will Technology play a big part in driving profits?”
I don’t doubt that at all; however, technology is not just San Francisco and Seattle. It’s the rest of our industrial and service sector whose production is primary technological. I do believe that our economy now has a needle in their arm – we are addicted to technology and those companies that are profitable are those who get the technology in place and begin to increase their margins because they made the investment.


From Left to Right:
Chris White, Savills Studley
Gregory Miller, SunTrust Bank
Rusty Lowe, Deloitte

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