Housing, Auto, Retail Sales: Is The Economy Starting To Free-Fall?

In the latest retail sales report for December, auto sales were nailed - down 1.8%. The only reason overall retail sales from November to December showed a slight "gain" that November's number was revised lower. Electronics fell off of a cliff. The housing market is about to get crushed. Feedback I'm getting from my articles and blog posts on housing from housing market professionals all around the country tells me that the housing market hit a wall at the end of 2013, as I have been forecasting.

The consumer is dead on arrival. I love the way last week's retail sales were blamed on the cold weather that hit the country the previous week. I guess consumers were still thawing out and decided to not restock on everything last week even though it warmed up in most of the country. The only thing "frozen" is the real wages and disposable income of the majority of Americans. And what's left over after the monthly of cost of Obamacare is spent won't be enough to buy a new car or a new home.

The proliferation of sub-prime quality, Government-subsidized auto loans made it a no-brainer for Americans to go out and buy a new car last year - just like no-document ARM mortgages coerced the peak of the housing bubble. But all that did was "pull" sales forward into 2013 and set up another debt-default crisis. The delinquency rate on sub-prime auto loans - now 28% of all auto loans - started to move a lot higher toward the end of 2013.

Even worse, the Dodd-Frank legislation that is supposed to protect America from Wall Street's monsters - which it won't as the beasts have already had their battalions of lawyers figure out ways around it - has imposed new mortgage rules which will make if more difficult for the average guy with no growth in real income to get a mortgage. In additions, the FHA implemented a reduction in the size of the standard mortgage it will guarantee in most markets - significant reductions in some markets. Wave good-bye to the fabled housing "recovery."

Despite the rhetoric coming from the Obama team and the endless stream of Fed officials who loudly broadcast that the economy is recovering, the truth is that the system has been set up for an epic collapse. I have suggested that there has not been real, inflation-adjusted growth since 2006. If you strip away the accounting fraud and non-GAAP nonsense that the Government lets the big corporations get away with now, real cash earnings from most companies has been flat to negative since 2006. This is especially true for the big banks. Witness today's earnings report from JP Morgan in which J P Morgan Chase & Co, (JPM)'s net income was largely comprised of non-cash add-backs and absurd accounting gimmicks. If we did a true, independently-assessed audit of JPM's books, I can guarantee you that the bank is insolvent.

The stock market appears to be unraveling. When the downside momentum really grips the market it will be an incredible sight to behold. The flip-side is that gold and the mining stocks have quietly, in the background, established a bottom and a new uptrend. What's happened over the last 2 1/2 years to the precious metals market will be reversed in equally as stunning of a move to the upside as we will see with the stock market to the downside.