Philip Schiff: It Was the “Strong Economy” That Was Transitory

Says there’s overwhelming proof that the recession has already began.

Federal Reserve Chairman Jerome Powell insists the central bank can fight inflation because the economy is solid. President Joe Biden helps to keep telling us the economic climate is strong.

The speaking heads on CNBC insist the underlying economy is strong. In a recent podcast, Philip Schiff talked about the economic climate. As it turns out, it’s not so strong.

We got  two income bombshells last week   in the retail sector. Both Walmart and Target documented higher revenues, but reduced than forecast profits. Higher costs ate up those increased revenues.

The news was a one-two punch, with the Walmart earnings being released first. Peter said this reminded investors of how poor the problem is and raised the specter of recession to a higher level.

Peter reminded listeners that  he already thinks we are going to in a recession .

“ I believe everybody who refuses to acknowledge this is living in denial, be it a case of wishful considering or cognitive dissonance, no matter what it is. But I think there is certainly overwhelming evidence that the recession has already started. ”

Target said the reason for its big profit miss was  surging costs caused by inflation .

“ Throughout the quarter, all of us faced unexpectedly high expenses, driven by a number of factors, resulting in profitability that arrived well below our goals, and well below exactly where we expect to operate over time, ” the  profits release   said.

As Philip explained, Target customers failed to have enough money left over after spending money on necessities to pay for higher-priced, big-ticket items.

“ They were spending money on higher-priced food. They were spending money on power, or higher rent, and so, these people didn’t have extra money. In fact , even though they were spending additional money at Target, they were spending more money buying higher-priced foods. ”

Food is a low-margin item for retailers. It gets people in the store, but Target depends on its higher-margin hardline products to drive margins.

“ If they had to raise the price of their own groceries because their expenses are going up, and now their own customers are spending the extra money they would have spent buying higher-margin stuff — if instead, they’re investing that money on meals, well, they don’t have cash left over. ”

This confirms that the  “ strong” retail sales numbers do not get the great news the popular claims . Just because consumers are spending more doesn’t suggest they are buying more.

“ In this case, they’re paying more for your wrong stuff (in terms of profit margin) and so they don’t have money left over to purchase the stuff Target needs to sell to make a good profit. ”

Peter said this means Target needs to raise prices much more.

“ It proves again exactly what I’ve been saying and how At the Warren has been wrong because Target is not gouging its customers. Target customers are gouging Target. Because Target is absorbing a lot of the rising costs and it’s not transferring its costs on to the customers. But it needs to. And it will. ”

This is bad news for your economy. If Target and other companies have to keep raising prices to cover costs, they are going to have fewer customers. There will be more and more people unable to pay the larger prices. And if companies are going to effectively downsize through cost increases, they won’t need as many workers. That means layoffs.

Meanwhile, you have Jerome Powell, President Biden, and mainstream pundits talking about how strong the economy is certainly.

“ One of the reasons they claim it might be so strong is because the customer is so strong. The consumer is accessible spending. Yeah, they’re investing. They’re spending it upon food. They’re spending this on gas. They’re spending it on rent. That isn’t strength. The consumer is solid when they don’t have to spend so much money on food and energy — when they have cash left over to buy other stuff. … If the consumer was therefore strong, why are all these merchants in bear markets? Why are these stocks getting smashed? Why are profits collapsing? … What’s happening in the real world is evidence of just how poor the consumer is. ”

And it’s real-world evidence that the economy alone is not as strong because the Fed, Joe Biden, as well as the talking heads on CNBC claim.

The only real evidence of a strong economy may be the job market. Peter said that can transform very quickly. All of the companies advertising for workers today could easily decide they don’t require new workers tomorrow. Actually weekly jobless claims are on the rise.

It’s not just the cost of everyday goods that is going up. Rates of interest are going up. That means consumers have to pay more on their  rapidly growing pile of financial debt . Mortgage rates are getting up.

“ Consumers are getting compressed from so many different angles using these rising costs. And to worsen it, the stock market has imploded. ”

As Peter points out, 70% of the GDP comes from consumer spending.

“ When you see the type of monetary stress the consumers are under and when you see the evidence of that stress being reported by Amazon, by Walmart, simply by Target, one after another. It’s the same story. How much evidence do you need that the economic climate is in recession?

Powell and others invested months telling us inflation was transitory. In reality, everything was transitory was the solid economy.

In this particular podcast, Peter also requires a deeper look at last week’s big stock declines, describes how inflation is really a tax, and he the sudden strength in the Swiss franc and the yen and what it could signal.


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