Really? 3.2% and 2%?

- The real problem is not why some pious, humble, believing people suffer, but why some do not.

- C.S. Lewis

Sell in May...

...and go away is an old Wall St. saying. Last week the government broadcasted two important stats. They claimed inflation grew in March at 3.2%. They followed this by announcing that our GDP grew by 2% in the quarter. Really?

Infaltion: This is only true by their phony matrix formula that does not include the three necessities that we all need everyday. We all know that fuel has risen by 40%. Every time we go to the grocery store, prices rise from week-to-week. Your rent only changes when the lease is due. Your home may have risen in value, but the expenses to keep and maintain it have risen. The worst is utilities and insurance. So, does anyone believe that inflation only rose 3.2%? We don't think so. It is more like 10%.

DGP: Our economy grew by 2% in the quarter. We find this misleading. We point to two facts with our conclusion.

First, the government, especially the administration, by now knows that war pumps the economy. They keep the debt caused by it out of the limelight. Ever since Russia invaded the Ukraine, we have aided the Ukrainians with weapons, supplies and other aspects. This aid has added strength to the economy. The recent conflict with Iran only adds to military spending which helps the economy. It masks my second point. Our economy has been consumer generated since the late 1970s. Then, our retail environment grew radiply along with housing. This created a problem. We overbuilt shopping centers and malls.  

As inflation slowly worked itself into the pocketbook of consumers along with the impact of shopping on the internet, brick and mortar locations began to suffer. The gradual decline was not alarming as everyone knew developers overbuilt. However, this decline saw two dramatic surges in the decline. The first was the financial crisis of 2008 and this was followed by COVID-19 in 2020. 

We have posted in many of our pieces the continuation of retail damage. It is now at the catastrophic stage. It is no longer just retail. Spirit Airlines is just the latest firm to go to bankruptcy. It seems every week another business announces job layoffs. Almost every firm cuts back on investment research. This implies no future products or service. Of course, you may doubt our point when you read about high-teck and their investment in AI and data centers. Dear Reader, this is a two-sided sword. Case in point: Meta announced that they will be risking $600 billion in AI and data centers. Folks, that extremely high number does not come without repercussions. In another statement, Meta is dropping 8,000 skilled positions. 

This type of investment and subsequent cutbacks appears with all the big players like Oracle, Apple, Microsoft, Amazon and Tesla. There are many more firms that are seeking the benefits of AI, but so far, and as far as we can see, there is no financial reward. Google is seeking money to do their entry into the field with a 100-year bond. That is crazy! This money has enticed chipmakers, servors and other infrastucture in the sector. It has also caused the stock market to hit new all-time highs in the S&P 500 and NASDAQ. We already told you that their indexes are closely tied and over represented by these same firms. This is misdirection. We said it before and we will repeat it here: there is a disconnect between the market and the economy. The market has nothing to do with the economy and the lives of our citizens. It may hold positions that could effect our retirement and things like that, but nothing in our present state. Oh yeah, the hidden dangers looming in private credit market.

2cd. Opinion?

Gary Shilling, the past, famous economist from Merril Lynch, sees recession as definite with the market dropping 30% by the end of the year. He sees some of the things that we see.

Present State:

Nike: they are cutting 1,400 jobs.                                                                                                                  Lammes Candies: famous candy store in Texas that had been in business for 141 years is gone.            Microsoft: is offering buyouts to 7% of their firm.                                                                                      Meta: is laying off 10% of its help.                                                                                                              Amazon: throwing in the towel on 16,000 workers.                                                                                    Oracle: They can't decide on how many they will lay off. Somewhere between 10,000 & 30,000.        Block (part of Square): they are dropping 4,000.                                                                                        Salesforce: so long to another 1,000.                                                                                                            Snap: Goodbye to 1,000.                                                                                                                              Eddie Bauer: is filing for bankruptcy.                                                                                                          Popeyes: is closing 3,193 locations and all the jobs tied to them.                                                                Starbucks: continues store closings. They added another 568 locations and jobs.                                      Coinbase: is cutting 14% of its workforce.

Bottom Line: Our consumer economy cannot keep retail from declining which means consumers do not have enough disposable money to maintain our economy. We advised you to save for a rainy day...Peace.