Not very rosy 

This is a measurement of cyclical spending against a nation’s gross domestic product (GDP).

What you have here is a deep, glaring look into the economy. The cyclical component of our economy is effectively just housing and durable goods.  It’s 10%-15% of GDP, but as this chart shows, there’s dramatic movement whether we experience growth or recession.  Here are the contributions to GDP in the fourth quarter. Everyone is high-fiving saying that we have great economic growth.

But look at three things…  First, inventory management surged. We produced a lot of goods, and we now have them in our inventory. If consumer demand slows and we experience a deflationary cycle, which is what’s happening, then this will hurt manufacturing even more.  Second, look at housing investment. That critical component has been blown out of the water. The Fed offered support to the housing market back in November when it stopped dumping mortgage-backed securities. Consumer spending. It’s still elevated. Because, as I continue to argue, negative real interest rates — the Consumer Price Index minus the Fed’s Fund Rate — encourages consumers to spend. Who is actually getting 3.5% from their bank right now? No one, unless they’re locking in one-year CDs.  And that’s critical because the entire financial system is moving into a deflationary situation. The M2 — which is a major indicator of “future inflation” and economic growth expectations — has collapsed at a pace we haven’t seen since the Great Depression.  This is our money supply. This is a complete cratering of our aggregate demand in our economy. And the Fed is still tightening.

So, let me make this easy for you — something big is coming. It could be next week. It could be in the March meeting. Take care of your monies.