We Have Run Out of Customers (by Bob Kudla)

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Let me explain:

The concept is beyond supply and demand, at some point the price gets to a point where there is not enough buyers at any price that makes sense to produce or serve, and for the world this has now become a structural problem, and will turn deflation into a depression.  Capital owners are resisting lowering their rate of return at a slower rate than consumers ability to purchase their goods and services.


Where do customers get their ability to buy goods and services? Wages, savings, and credit. In the U.S. Wages (Net after taxes and Healthcare Tax) is and has been flat to falling for 20 years. Savings are minimal, and in fact most folks have none. Finally credit. Since 2008 credit has fallen except for the insane Auto loan market, and Student loans (other credit excess reserves are hoarded by the banks). It looks like the auto loan market is now saturated, if today’s report becomes a trend.

So our ability to buy, in aggregate is falling, yet the things we need to buy is out of reach. Rents, healthcare deductibles, home purchases, the stock market, all have ventured away from reality and are now priced where even the wealthy no longer can generate yield, and regular customers are unable to afford to purchase. Both the investor, producer, and consumer is now screwed.

Since the need portion of our budget is so dominant, there is very little money left for the want portion. The wealthy and the affluent are sated, and the middle class and lower either does not or cannot purchase these categories. Therefore prices of everything needs to reset radically, downward to meet the new income levels or simply disappear. When that happens we go from deflation to depression, we have surplus consumers with an inability to purchase goods, and a shrunken capital base in which to produce it.

Add to this, a stronger dollar,  rising interest rates, and with our three largest trading partners and competitors in or are close to recessions,  with an overabundance of capacity creates a perfect storm for investors.

Where to go?

Stock market is insanely overvalued, and time stretched, with horrible breadth and declining cash flows.

The FANGS are obscenely overbought and owned
Biotech is overvalued, and is subject to political meddling.

Commodities have begun, and some cases already collapsed with no sign of recovery.

Precious Metals are subject to the strength in the dollar and will continue to fall until we have some sort of monetary event.

Real Estate’s yields are now low single digits for A paper, and has the liability of taxation, rising interest rates, maintenance, and political interest.

Farmland? See commodity prices.

Timber? See Real estate construction spending

Long Bonds. We have a winner. Short rates are rising and the economy is going into a recession, so it will drag the long bond down, creating a nice capital gain.

After the bond yield option plays out, cash is it until the FED decides to try and re-inflate again. But they will fail as it will cause tremendous stress and distortions that will break the system. Then Gold.