Notes on the Economy – December 2011

My continued apologies to my regular readers – my work and school schedules continue to keep me from writing as much as I’d like. However, there have been some significant developments in the economic world over the past month that I would like to offer my humble opinion.

Increased Holiday Shopping Leads to Losses

In an effort to get shoppers in the door, retailers have discounted their wares to record lows. If the goal was to get people to shop more, it worked! Consumer confidence was up in November and December. Bloomberg reports that retail sales for Holiday shopping are up 4.5% from last year!  If the goal was to put some of the millions of unemployed to work doing the graveyard shift at Toys-R-Us, that worked too as the unemployment rate finally fell below 9% in December. If the goal was to make a profit and stay in business… uh…well, the retail sector has failed miserably on that count.

Already we’ve seen Sears/Kmart and Best Buy reporting profit losses as Holiday discounting erased any projected profit margins and are now threatening these companies long run existences. You’d think that after the fall of retail giants Circuit City and Borders earlier this year, that the industry would have seen the error in confusing profit with volume in sales, but alas, these lessons seem to be hard to learn.

My guess is that in the next few weeks we’ll be seeing similar announcements coming from Lowes, Wal Mart, Target, Kohls, and a number of other discount retailers across the country. During Black Friday weekend I managed to score a brand new refrigerator from Lowes at nearly 50% off retail. One does not have to be an accountant to know that when companies discount their merchandise to that level, it is more likely that they are in the middle of a price war that will likely bankrupt several companies and leave hundreds of thousands more unemployed by the middle of the first quarter.

(Update: Jan 6, 2012) My forecast was correct – check out this article from Bloomberg.

The Stock Market

It looks like the major indexes are going to finish the year pretty much where they started while making all of us pretty seasick in the process. Frankly, I’ve pretty much stopped paying attention to the equity markets because it makes my head hurt and my stomach queasy. Thank goodness I cashed out all of my stock months ago.

Listening to Ron Paul

Love him or hate him, Dr. Paul is the quintessential “anti-candidate” who is now enjoying a steady rise in the poll numbers because people are finally starting to listen to what he’s been saying for the past twenty years.  The media continues to try and ignore him or scare us into thinking that he’ll bring about the apocalypse, but they do so at their peril, especially if he starts winning key primary races.

What’s unfortunate about his rise in poll numbers is that his popularity among the general electorate is likely to be in direct proportion to how poorly the economy is doing. Occupy Protestors and Tea Party Activists alike see Dr. Paul as the only candidate who won’t ignore our impending economic collapse. Whether he’ll actually be able to do anything in office should he be elected is another matter altogether (provided there’s still a government for him to go to).

The US Treasury Bond Market

Ten-Year Treasury Bonds remain essentially worthless as they have been since September. As investors throughout the world run out of things to invest in, they’ll continue to buy US Debt and therefore continue the illusion that our government can spend and spend like there’s no tomorrow. Ever wonder why lawmakers continue to sit on their hands while the debt continues to grow unabated? The reason is simple. Even at negative yields, US Treasury bonds continue to be the best investment on the market.

Imagine yourself in a grocery store where the only food on the shelf that wasn’t covered in mold was cabbage, and there was enough cabbage for everyone in the store to fill their shopping carts with it. If you weren’t the one actually doing the shopping you would think that everyone in the world must LOVE cabbage. After all, why would people buy it in such large quantities if it wasn’t something that everyone wanted?  Unfortunately, while eating cabbage will keep you alive, you can’t thrive on it. While the Federal Reserve can keep bonds paying their pitiful yields to investors, neither the investor nor the US Government is thriving from the practice. Eventually, even the cabbage will become scarce, and what then?

Things Going As Predicted

As predicted, the December economic indicators performed exactly to my expectations with absolutely no surprises.  I sincerely hope that all of my readers took advantage of the insane discounts at your local retailer this Holiday Season because next year I predict shortages in product as both retail and distribution networks are likely be hit hard due to an inability to stay in business.

If you own Stocks and/or Bonds, congratulations! You are probably sitting on some decent unrealized gains right now, although I’m sure they’re not as high as you’d like them to be. Cash out now and start shopping for everything you think might wear out within the next year. If you own gold – sorry buddy. You should have cashed out in September, but if you hold onto it now, you might be able to recover some value over the next year but the problem with gold is that you can’t eat it nor use it to produce anything that you might actually need.

While I still think Ron Paul has a snowball’s chance of actually winning the nomination let alone the Presidency, I’ve been wrong many times when it comes to politics. I leave room to be pleasantly surprised, especially if my other predictions turn out to be correct.

Happy New Year!

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The views expressed in this article belong to the author/contributor and do not necessarily reflect the views of the Nolan Chart or its ownership


  1. says

    Nicely done. I agree about precious metals in the short term. I got stopped out of my silver ETF trade about two weeks ago, and I’m just waiting for the decline to finish before I jump back in again. It could be awhile, because as the European situation continues to deteriorate, the investment community will continue to rush headlong away from everything else into the dollar, like a horse running back into a burning barn. Since precious metals do not currently have the status of currency, they behave like any other commodity in this kind of situation.

    However, I’m also looking for what happens as the central banks continue to pour more money on the fire. Eventually, the “horses” will begin to realize that the fire is inside the barn, not outside, and some of them may actually run out the barn door. When they do, precious metals will likely start to take off.

    This ongoing financial crisis is all about the fact that the era of borrow and spend cannot continue. The system is saturated. Yet, the monetary system depends upon borrow and spend. The long run must therefore include continued money creation in large amounts, and when that money finally enters circulation (rather than being held by the banks), watch out!

  2. DC70 says

    Good call on the retail fire sales. Regarding Treasuries, 
    I think zero coupon treasuries are a safe bet, if there are any safe bets at all.

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