When The Peter Pans Of Finance Whistle Past The Graveyard

When the boys & girls and robo-machines which populate the casino take to whistling a brave tune past a looming economic and financial graveyard you can be pretty sure that the end is nigh. And the pre-opening hours on bubblevision today were a pretty good case in point.

For instance, we heard the bubblevision people say the Donald’s Castro-length (2 hours and 20 minutes) outpouring of bile, bombast, braggadocio and bullshit at the CPAC conference Saturday was nothing to worry about. That’s because he was allegedly just speaking to his “base”.

No, not at all!

He was actually just speaking his mind—and that should scare the hell out of anyone who is paying even remote attention. After all, the Donald’s mind was a pretty vacuous, dimly-lit cavern in the first place; and now his monumental ego has pumped it full of factoids and half-baked fantasies about how he’s made MAGA in barely 24 months.

Actually, what he’s done is pile several steaming policy turds–his Trade War, Border War, Fiscal Debauch and cheap money rhetorical bombs—on top of a lame economy and octogenarian business cycle that was going down for the count anyway.

And when it does succumb to recession, there will be hell to pay.

To wit, the Fed is out of dry powder and will have little ability to reflate a V-shaped rebound in the casino, and Uncle Sam’s current year $1.2 trillion borrowing requirement is in fiscal no-man’s land this late in the cycle and will bleed into $2 trillion of red ink when GDP and employment rollover and the C-suites launch their next round of brutal “restructuring” plans, layoffs, inventory liquidations etc.

Likewise, the ballyhooed Trade Deal with China at the end of March, as we elaborate Tuesday, will be little more than a deal to make a deal to fight over rubbery miles-stones, arcane compliance procedures and retaliatory sanctions; and once the market plunges and the economy heads south, the Capitol Hill Republicans will give the idea of rats jumping off a sinking ship an altogether new definition.

Back in the day, we saw it with Tricky Dick Nixon, who won a landslide election victory in 1972 and who had spent 26 years on the rubber chicken circuit campaigning for any and all Republican candidates from US Senator and governor, to state legislature, mayor, county commissioner and dog-catcher.

Yet within 18 months, the stock market had declined by 38%, the US economy was heading into the drink and Tricky Dick’s poll ratings were plunging. Suddenly, the deck of the good ship Nixon was empty and silent and the GOP elders had him on the White House helicopter for his final ride to Gonesville.

Here’s the only difference: Trump is no Nixon. The latter was a deeply insecure political realist who knew when he was no longer loved, while the Donald is a clueless megalomaniac who is so in love with himself that he won’t notice the lapse everywhere else.

And we do not hesitate to aver that when this aging, wheezing, debt-ridden, bubble-swollen business expansion comes to its appointed end, the sense of betrayal in Red State America will be bitter and vindictive. The Donald was never viewed in Flyover Country as a charismatic political savior anyway; he was just the available vehicle for the left behind voters’ version of an Hail Mary!

Besides, the electoral math doesn’t lie. The Donald won the electoral college by a hairline fluke in a few dozen rust belt counties in Michigan, Ohio, Pennsylvania, Wisconsin and Iowa with a 90,000 vote margin among 136 million votes cast; and he had no political IOUs to collect from before then (it’s not obvious he was even a Republican) while in 2018 the GOP rank and file got shellacked just 50 days after PEAK TRUMP at 2940 on the S&P 500.

More importantly and unlike Nixon, the Donald is an unhinged street-brawler who will not go quietly into the good night of resignation when called upon by a desperate GOP fearing the mother of all electoral wipeouts in 2020.

To the contrary. We recall standing on the House Floor in August 1974 and hearing the reassuring words of the politicians pol, Gerald Ford, telling America that its “long nightmare is over”. Yet upon hearing the Donald’s CPAC rant this weekend, we have become more convinced than ever that America’s nightmare is just getting started.

Needless to say, when the long-knives of the bipartisan Washington establishment finally come for his comb-over, the pose below will be among the more benign visages that will grace the screens of Fake News.

The Donald, in fact, will lash out with such vituperation and bellicosity that the entire house of cards built upon three decades of cheap debt and Bubble Finance windfalls to the wealthy will surely come crashing down.

When the history is written, of course, there will be endless befuddlement as to why mainstream opinion didn’t see it coming—just like the dotcom crash in the April 2000 or the Lehman meltdown in September 2008.

Yet that very same bubble blindness has returned in spades—and now with hardly the bother of a “this time is different” theory like early 2000 or an impatient insistence that goldilocks is “alive and well”, as per the narrative during the 2007-2008 run-up to the great financial crisis.

That may be because after 30-years of central bank liquidity floods, “puts”, wealth effects coddling and endless stick saves, the casino and its bubblevision echo chambers live strictly in the moment. The denizens of Wall Street, as it were, have been turned into the Peter Pans of finance and by their lights the economy and the bubble cycle dwell in Neverland and will “grow old and grouchy never!”

Accordingly, any principles of sound finance that may give warning to the trouble ahead have been long discarded or forgotten. Similarly, solid trend analysis that discredits the hopium of the moment is eschewed in favor of cherry-picking whatever happy uptick is handy.

Not surprisingly, we ran into a chorus of that this AM during an appearance on Fox Business News’ Maria Bartiromo show.

The factoid of the day was the “best growth in 13 years” narrative per the 3.1% real GDP gain for Q4/Q4 2018. It didn’t matter that the sugar high in that number from trade war dislocation of exports and inventories last year and a one-time boost to consumption spending financed on Uncle Sam’s credit card has already faded. But that’s evident in the <1% “Nowcast” numbers for Q1 coming from the Atlanta Fed, the New York Fed, Goldman and a slew off other bean counters of the “incoming data”.

Nor did the obvious point that Obama had a 3.8% y/y gain in Q3 2015, but it didn’t last because the US economy is structurally weak, debt-impaired and subject to the ebbs and flows of the Red Ponzi driven global production and trading system.

As we said last week, the great delusion of the moment is that the US economy has accelerated owing to some kind of Trump-O-Nomics magic, when the truth of the matter is that the business cycle has merely drifted into its final days at 116 months based on pure momentum—even as policy gets decidedly worse.

That was reinforced by still another data point today. Construction spending was down again in December and now stands 2.3% below the post-tax cut blip registered last May.

Not only has this component of capita spending rolled-over, but it never really escaped the housing crash doldrums at all, thereby reinforcing the true narrative of the moment.

That is, rather than the best calendar year growth in 13 years we have actually posted the worst 11-year cycle of real GDP expansion in US history. As we noted on Friday, cumulative real GDP growth over 2007-2018 was 18.9% compared to 19.9% during the previous worst cycle, the 1929-1940 period encompassing the Great Depression.

Likewise, exactly 13 years ago in March 2006, nominal construction spending posted at $1.205 trillion (at a seasonally adjusted annual rate) compared to just $1.293 trillion for December 2018. Yet even the BLS’ sawed off GDP deflator has rising by 24% in the interim.

So adjusted to current purchasing power, the March 2006 figure for construction spending in the US economy—public and private, business, commercial and housing—would be $1.505 trillion or more than 16% above current levels.

Needless to say, the Foxites were not only having nothing to do with facts, but they were actually happy to acknowledge the late stage of the business cycle and that the nation’s $22 trillion debt was a scary thing, albeitt nothing to sweat because at the very moment its being readily financed at less than 2.75% on the 10-year note.

That’s right. It’s a Peter Pan world and nothing’s ever going to change, nor, apparently, is the passage of time of any moment at all.

Then again, the $22 trillion of public debt today is already $40 trillion in the objective sense. That’s because a recession is virtually guaranteed to happen sometime during the 232 month span between the last one (2009) and the end of the current 10-year budget window (2028). Yet the math of current fiscal policy—-which can only get far worse if the Dems sweep in 2020—and a mild-recession economic scenario is actually more than $40 trillion of public debt or 140% of GDP.

But here’s the thing. Even at the Foxites’ 2.75% 10-year UST rate, the implied interest on the Federal debt in 2028 would be $1.1 trillion or more than triple the current level.

Somehow we have the distinct impression that the combination of soaring debt service and the exploding cost of the retiring Baby Boom over the next 10 years will take us to a new place—and one that is most definitely not Neverland.