Brave New Economic World

The overriding issue seems to be that the money being injected by the Central Banks has nowhere to go but assets.

I’ve just read an interesting article about how Americans are eating less desserts. Quote: Only 12% of dinners eaten at home include a dessert. That is down from 15% 10 years ago. And its way down from the 24% of Americans who said they had dessert with dinner back in 1986.

I suspect that the relevance of this is that the average citizen is becoming more serious minded and more “depressed”.  Here is an article about how the number of people in the US who have experienced depression has been increasing by 20% a year. http://www.healthline.com/health/depression/statistics-infographic

Interim Conclusion

The rich are coping and the poor are getting poorer. The rich are optimistic and the poor are pessimistic.  The rich think the economic situation is under control and the poor are viewing the future in a negative light.

Here’s a link to Wal-Mart’s P&L accounts. Revenue grew by 4.9% 2013/201 and by only 1.7% 2014/2013  https://finance.yahoo.com/q/is?s=WMT+Income+Statement&annual Profit fell in 2014.

Below is a chart of Wal-Mart’s Annual Gross Profit since 1999. It seems to me to be reaching asymptotic levels.

Agriculture in general appears to be doing it tough, worldwide, according to this article. Quote: "Deere's first-quarter performance reflected sluggish conditions in the global farm sector, which reduced demand for agricultural machinery, particularly larger models, and led to lower sales and income," said Samuel R. Allen, chairman and chief executive officer. "At the same time, our construction and forestry and financial services divisions had higher profits, showing the benefit of a well-rounded business lineup. Deere's results also demonstrated the progress we've made creating a more flexible, responsive cost structure." 

http://finance.yahoo.com/news/deere-announces-first-quarter-earnings-120000953.html

On the other hand, “Tech” seems to be doing OK – which would seem to validate Deere’s experience that economic drivers are shifting away from traditional “consumption”.

Here are three other interesting charts that I came across. In the US, new homes are being built larger and the number of new homes with four bedrooms has been increasing (even though the number of children per family has not). By implication, more people are “sharing” one home.

http://www.businessinsider.com.au/evolving-new-house-characteristics-chart-2014-5

Figure 1

The U.S. Fertility Rate Has Fallen During Periods of Economic Decline

http://www.prb.org/publications/datasheets/2012/world-population-data-sheet/fact-sheet-us-population.aspx

It seems to me that we are watching a sea change in consumer values and attitudes because “real” income has been declining for years

http://research.stlouisfed.org/fred2/graph/?g=XH6

“Consumption” is making way for “Investment” as incomes have come under downward pressure since the late 1990s. By implication, one needs to be careful in respect of how one defines “Blue Chip”. My guess is that infrastructure oriented investment has been driving the global economy since the GFC emerged.

Conclusion

If one views the economy in terms of traditional historical “drivers”, one will conclude that the economy is in trouble. However, the facts seem to suggest that the drivers are changing, people are adjusting their behaviours, and economic activity as a whole is being maintained even as the underlying component shares are changing.  The overriding limiting factor, however, still seems to be debt. The only way this can be prevented from imploding is if interest rates remain at near zero. Unfortunately, whilst debt repayment can be postponed on a temporary basis, “eventually” it has to be repaid or written off.  In my view the end game is either war or economic dysfunctionality. The unknown factor is one of timing. No one alive can make that call. Analysis therefore has to be short term oriented.

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Brian Bloom

Tea Gardens, NSW, Australia

www.beyondneanderthal.com