• Friday the 13 was an unlucky day on Wall Street
  • The Dow was down over 200 points – the second back to back decline of over 1% since August
  • What was happening in August? Everybody was convinced the Fed was going to raise rates in September
  • Now, everybody is just as convinced that the Fed will raise rates in December
  • Once again, as I predicted a week ago, the market sold off
  • We are down over 650 points on the week
  • Nasdaq is down today even more – 1-1/2%
  • The carnage was once again led by the retailers
  • Bad earnings out of Macy’s Nordstrom’s Walmart and others set the scene for new share price lows
  • I have been warning about this all year, based on inventory numbers
  • All the evidence is flashing recession
  • The Fed has been saying that they are data dependent – open your eyes and look at the data!
  • This data is consistent with the beginning of a recession
  • Yes, unemployment is low, but unemployment is always low when recessions begin
  • I think the Fed knows they are not going to raise rates
  • The Fed minutes are coming out next week and we’ll get an insight into the deliberation between the members
  • All Janet Yellen said was that an interest rate hike was a “live possibility” – The market did the rest.
  • They took the word “possibility” and assumed that it was a probability
  • Let’s look at the economic data that came in today:
  • First, October Producer Prices – they were looking for a rise of .2, because last month, they actually fell by .5
  • We didn’t get .2; we got -.4
  • As of last month, year over year producer prices have declined 1.1%
  • Now they are down 1.6% on the year
  • This is going the opposite direction of the Fed’s goal of 2% inflation
  • The worst number was retail sales:
  • They were looking for a rise of .3, which is still not a big rise – but we got an increase of just .1
  • To add insult to injury, they had adjusted last month’s forecast to zero
  • Also x auto, they were looking for a gain of .4 and instead got a gain of .2
  • These numbers will subtract from Q3 and Q4 GDP
  • We also got September inventory numbers:
  • The consensus was a rise of .1, but instead we rose .3
  • This rise was not a result of an increase of sales, it is because sales are not keeping up with inventories
  • The inventory to sales ratio rose to 1.48 fro 1.47
  • The last time we had this number was during the financial crisis
  • I have been pointing out that these inventory numbers have been padding the GDP for the last several quarters
  • This has been ignored on Wall Street
  • This means future GDP will plunge as companies need to liquidate inventories and not replenish them
  • Not only that, they will be liquidating their workforce
  • The heavy layoffs may not happen this year – more likely they will come in January and February
  • The odds are that the Fed is not going to raise rates in December and the odds against a rate hike as the market continues to sink, with more and more bad economic news
  • This bad news about retail sales was unexpected by the market as evidenced by the sharp drop in share prices
  • Is the Fed going to raise rates just as the economy is turning down? Not a chance.
  • If they do, imagine how much worse the economy will be
  • The question is: When is the Fed going to come clean and admit that they are not going to raise rates and will their excuse be and will the markets buy it?