All Along The Watchtower?

"SP500 earnings have been on a tear (up 19% yoy in Q1), that does not translate to the economy as a whole. Pre-tax corporate profits in Q1 were down 6% from the previous year. Even after tax reform, corporate earnings were barely higher than a year ago. Why aren't companies investing in their business? I think the answer is pretty obvious."  As Good As It Gets? - Joe Calhoun

Joe, excellent as always, with a sprinkle of optimism...

But you and I, we've been through that
And this is not our fate
So let us not talk falsely now
The hour is getting late

The answer is obvious? Must be all that happy daze narrative and our recovery? Not, and the only recovery was an imagined one. The good news?

There must be some kind of way out of here
Said the joker to the thief
There's too much confusion
I can't get no relief

Profits have been on a tear because of the ongoing margin squeeze viz. cost cutting, no capex, layoffs, more part time workers, less benefits, outsourcing to labor at the margin, wage suppression. Meanwhile the consumer squeeze continues...

"year-over-year income growth is lower than at the start of the last recession. And the one before that. And the one before that.... With rising gas prices driving consumption growth higher (see below), the difference came from savings, where the rate is now less than 3%. 

Consumers seem confident but they aren't spending at a high rate, their revolving credit balances are growing and their savings rate is falling. One wonders what exactly makes them so confident."

And there is the answer to pre tax profits being down, higher prices with less real income to spend. Unfortunately necessities are just that, and one must borrow if need be, and if they can.

Businessmen they drink my wine
Plowmen dig my earth
None of them along the line
Know what any of it is worth

Meanwhile the illusion of robustness continues as the consumer draws down savings and borrows more to make ends meet.  Delusional hope, faith in false narrative, ample medication, and as reflected by the electorates voting predilection, growing desperation is more like it.

No reason to get excited
The thief, he kindly spoke
There are many here among us
Who feel that life is but a joke

"The yield curve is back to the lows of the cycle, but we've still got 42 basis points to flat. Even when we get there, if history is a guide, recession won't be imminent."

As for the 10/2 spread, 42 bps can be worked off in five months or less. The chart above is same as it ever was, flat equals declared recession within 24 months, as a precursor yet to fail or be wrong.  The bad news?

All along the watchtower
Princes kept the view
While all the women came and went
Barefoot servants too

There never was any real recovery, and the damage done has left us in a chronically dysfunctional economic state of disequilibrium viz. we are already in something far, far worse than the R word and it starts with a D.

"It's a recession when your neighbor loses his job; it's a depression when you lose yours."

Oft attributed to Harry S. Truman, but never sourced.

Outside in the distance
A wildcat did growl
Two riders were approaching
And the wind began to howl