Transcription
We just got some shocking news out of Japan. And as you're about to see, it's going to affect every major economy all across the world.
Now, let's turn to Bloomberg where we find out Japan now has fallen. We said this was coming and now it's finally happened. As Japan's exports fall the most in four years of tariff pain deepens. You know, we've been talking about how there was this inevitable payback period that was coming from the pandemic and then from front running the tariffs. It didn't show up in the data because there was so much demand from getting ahead of these price increases that many people believed it wasn't going to show up. And now we're finally starting to see it. Japan, the first major economy to show things are now starting to plunge, and this is going to ripple all across the world.
Exports fell 2.6% in value in July from a year earlier, meaning they're now in contraction. The downtrend, led by cars, auto parts, and steel, was the biggest since February of 2021. And exports volume rose by 1.2%, suggesting exporters are continuing to absorb tariff costs by cutting selling prices to preserve market share. And then it's not just about preserving market share. It's about staying in business. Because what they realize is that consumers around the world cannot afford higher prices. So businesses have absolutely no choice but to absorb as much of these tariff increases that they can and try to minimize price increases.
Now, remember yesterday we talked about Home Depot and what were they going to try to do? Find out if they could sneak price increases into different products in hopes that consumers wouldn't notice. But what's going to happen is not only are we going to face a major economic downturn, but it's going to hit stock markets all over the world. We'll talk more about that in a bit. But let's take a look at how this is going to affect economies all over the world, particularly right here at home. Let's look at imports of goods and services, this shown in blue, against the unemployment rate. And remember, we've talked about how we're a globally synchronized economy. So when things slow down, it impacts labor markets all across the world. So again, from Japan's perspective, as demand drops there, they're going to need fewer workers.
But how about the US? Well, you could see the relationship between imports and joblessness. As imports decelerate, you can see the unemployment rate rises. And this is a warning because you'll notice this is the trend that happens when we go into every recession. We saw imports drop. We saw the unemployment rate rise a little bit. We didn't have a recession, but now it's starting to roll over and it's going to get far worse. If we start to see the unemployment rate rise here, it's now a foregone conclusion that we're headed right into a recession. And imports decrease 7.5% as inbound shipments of crude oil, coal, and liquefied natural gas all shrank by double digits.
So what is this telling us from a consumer perspective? Is demand is going down, not just at the factory level, but all across the supply chain, all down to the consumer level. Everybody is cutting back. And again, we've talked about how as demand goes down from consumers around the world and backfeeds all across the global economy, Japan being an export-led economy, you can see the impact there. Consumers cutting back because they know they're going to be the next people to face unemployment. Again, the risk here is things are going to spiral right out of control.
And the latest line in exports may strengthen concerns over whether Japan's economy can continue to expand as US President Donald Trump's tariffs weigh on global trade. But it's not going to be just about Japan's economy. It's going to be China's. It's going to be the UK. It's going to be Europe. It's going to be the US, Canada, Mexico. It's going to be all of us. Everybody's going to start to wonder if it was just the tariffs that were doing this. But keep in mind, post pandemic, the global economy was decelerating. And we've made the case before that all it takes is something to tip it over the edge. And perhaps the trade war is now doing that as we begin the first of what could be a very protracted payback period. And while the economy has so far managed to eke out growth on the last five quarters despite weakness in domestic consumption, further drops in exports could drag the economy into reverse.
And remember, Japan's been dealing with inflation for the first time in decades. Of course, Bank of Japan raised interest rates. We said, "Look, this is not going to last." Sure enough, now you're seeing this all turn around. You're seeing things plunge. You're seeing Japan's economy begin a downward spiral as it's going to crash. But again, this isn't about interest rate policy. This isn't about central banks. It's all about demand from consumers around the world.
But something that shouldn't face further declines is your trading account. Let's take a look at this trade on DBA. We told our Momentum Timer Pro subscribers to put on on the 7th. They're up now 4.23%. And the following day, this trade went out to our CTA Timer Pro subscribers. They're up 2.8%. And again, we just told them, here's where you want to buy, and we gave them our risk control levels. Again, they didn't have to look at any charts. They didn't have to do any research. We gave them the reports and the risk control levels. In addition, right now, both of our subscriptions are getting our Meta Strategy. Now, if you want to get in on trades like this and other trades, grab those links in the description below. Be sure to use your coupon code for your free 30-day trial.
Let's take a look again at imports of goods and services, but now let's overlay average weekly hours of production and non-supervisory employees because the issue here is everyone's saying it's the trade war. And yes, that is part of the whole dynamic here. But the real bottom line, it's about US consumers and it's about consumers all over the world because what they're facing is shrinking paychecks. When that happens, demand drops. In Japan's case, exports go down. In the US, here of course, we see imports drop. And we know why this happens. It's because US consumers are demanding less as their paychecks shrink. You can see that very clearly here in '94, back when I graduated high school. See it going in the dot-com bubble, the global financial crisis leading into the pandemic. And now you're seeing it happen again. But why did we see that big bump in imports? All due to front running the tariffs.
Now, if you think about the economic damage here, all that front running of the tariffs that wasn't met with demand leads to inventory building. We got more on that here in a bit because it's going to crush the bottom line for a lot of companies' profit margins. And we're going to find out over the next couple quarters just how bad this is going to be. Mounting profit pressures may also limit companies' ability to continue raising wages, potentially threatening Japan's fragile virtue cycle of wage-price growth. Because that's what everybody thinks. You know, we hear this from central bankers. There's wage increases, so that naturally leads to inflation. We said, well, it's not the case because you have to have a job to get a wage increase first. And if there aren't enough people working, yes, while those who do have a job tend to get pay increases, even in recessions, it's not enough to drive inflation.
But let's take a look at the impact of corporate profits and take-home pay here. Let's first take a look at average weekly hours of production and non-supervisory employees. That's still shown in red, now overlaid against corporate profits after tax. And you can see very clearly as corporate profits decline, well, hours worked go down. Again, it's all about demand here. In this case, we're seeing a very clear sign that as profits contract, demand for labor goes right alongside with it. And the risk we're facing right now is corporate profits are going to roll over. And that means hours worked are going to get cut even more. And if you want to talk about demand destruction, you're going to see it even at a larger scale because consumers here in the US and all over the world have been falling further and further behind due to rising inflation and shrinking paychecks.
But here at home, what have we been facing this summer? Rising electric bills, student loan repayments are coming back. And we're seeing such an impact on household finances that even higher net worth Americans are facing a rising delinquency rate when it comes to their credit cards and auto loans. Again, what we're facing here is a major crisis. Now, the first shoe has dropped in Japan. Let's take a look at this next chart of average hourly earnings of production and non-supervisory employees. And one thing we note is that there's absolutely no real relationship between when you see a contraction in profits and a contraction of hourly earnings. In fact, it tends to be just the opposite. As profits go down, well, you see average hourly earnings rise. Now, that might not make any sense until you realize there is one factor that a lot of people overlook. Those that still keep their job, well, employers are incentivized to make sure they're hardworking and keep their productivity up, so they do get pay raises. Meanwhile, a lot of their co-workers find themselves on the unemployment line.
The economy will likely contract in the third quarter due to decline in exports. As for the tariff-related uncertainty, the governor, Way to mention, I think it will take quite a while before the fog clears. I think that is going to be an understatement. This fog is going to turn into an all-out storm and then into an all-out crisis because nobody expected this to happen. But again, we've been talking about the payback period that it was eventually going to show up, and now we're finally seeing it in Japan. And this could be what's causing the spillover here into the US stock market as the NASDAQ 100 falls one and a half percent as tech-led selloff picks up.
But you might remember for the past several weeks on our Sunday show, I've been warning this was coming. Many people in the comments say, "Yeah, you know, broken clock is right twice a day. He's never right about anything." But look, I'm telling you, this was one of the clearest signs that there was going to be a market sell-off. Let's take a deeper look. Matt Mi said, "The recent decline in the tech sector could very well turn out to be the kind of mild hiccup we saw three weeks ago." He said, "We need to see more downside follow-through before raising any yellow warning flags." Well, Matt, I've got the biggest yellow warning flag that you've ever seen. Let's take a look at this next slide here. And this is breadth. And this is what we've been warning about on our Sunday show. We're taking a look at the percentage of NASDAQ 100 stocks trading above their 50-day moving average. You see that in red, and what's happening, Matt? It's going down. And as breadth goes down, what happens? Price eventually follows. You can see price following breadth lower, and you can see price following breadth higher. This again, this isn't just a yellow flag, Matt. This is a major red flag.
But let's turn to yesterday's topic as a follow-up on the housing market. We got more bad news there, too. The US housing warning sparks the worst James Hardy sell-off since 1973, sending their stock crashing by 28% as its quarterly profits sank and it warned demand for repairs and new construction in North America remain challenging. "Uncertainty is a common thread throughout conversations with customer and contractor partners," is from the CEO. "Homeowners are deferring large ticket remodeling projects and affordability remains a key impediment to improvement in single-family new construction." It's not about affordability. Yes, if you want to make it about affordability, then yes, prices need to come down in a major way because what's also falling are paychecks. Again, this is all about paychecks because if workers were seeing pay increases and their hours worked were rising and they saw opportunity in the future that that was going to continue, they would do the remodels. They would go out and buy new homes. But the problem is they aren't. In fact, they're seeing just the opposite. They're worried they're going to lose their job and they're going to see even more of their hours get cut.
But right now, everybody's starting to believe that the one saving grace could be the Fed. But I've got news for you. It's not. "Could somebody please inform Jerome 'too late' Powell that he's hurting the housing industry very badly? People can't get a mortgage because of him. There's no inflation and every sign is pointing to a major rate cut. 'Too late' is a disaster." This from President Donald Trump on Truth Social. But Mr. President, let me tell you something. I've said before and I'll say it again. You do not want a rate cut because a rate cut is a response to a weakening economy. You want rates to be going up to validate that we're seeing growth and inflation expectations rise. The problem is we're not. And here's the evidence. It's so obvious.
Let's take a look at the last time we saw new privately owned housing starts crumble against the federal funds rate. And you can see there was a while that the Fed didn't react. But sometime around 2007, the Fed started to wake up and realize that this trend was getting worse and quick. And in reaction to where the economy was going, the Fed cut rates. Now, you can see we got a half-point cut here. But as housing starts continue to decline, as we continue to see a pullback in demand for housing-related stocks and materials, what we're going to see is the Fed is eventually going to follow through with rate cuts. Now, maybe they will in September. We'll find out more from Powell on Friday if he hints at a coming rate cut. But again, the risk here, Mr. President, is a rate cut is in reaction to a weakened economy. It does intend to spur growth because it means people that are already out of work. The rate cut doesn't help them. They can't go borrow money and spend money because the bank won't lend. And that is the risk we're facing here.
And we can see further evidence in consumer stress. Let's take a look at TJ Maxx, who tops expectations as bargains still sell. TJ Maxx has been aggressively snapping up excess merchandise from brands looking to clear out piles of unsold goods. Now, this is very interesting, my friends, because we've talked about how there's likely going to be deflation or disinflation from all this massive inventory buildup. Well, we're seeing TJ Maxx being a beneficiary here, getting discounted merchandise and trying to clear it. That means prices are coming down. And for corporate profits, well, you can imagine for those dumping this inventory, it's going to be a hit. Man said there was excellent buying opportunities in the market and pounced on those deals. Well, no doubt there's going to be lots of deals coming forward here, and that's the issue. Consumers around the world are stressed. They're not buying. This inventory is going to be a major problem for a lot of companies. It's going to get discounted in a huge way. And again, you talk about worrying about price increases. We're likely to see price decreases potentially in some sectors of the economy. All-out deflation.
And there's further evidence as we turn to Target as they now pick a new CEO to lead turnaround. The problem is he doesn't get it. He doesn't get this at all. And I want to show you he doesn't understand what's coming for the US economy because his plan isn't going to work. But the evidence, the problem Target is they're a big discretionary goods seller. And what did we say was going to take the first hit? Discretionary goods. Let's take a look at their turnaround plan and why it won't work. Michael Fidelki, who started as an intern back in 2003, faces immediate challenges of reversing an extended streak of poor performance and the loss of market share due to competitors such as Walmart and Amazon. Now, why do they lose market share to Walmart and Amazon? Because when things slow down, people start competing for customers. And how do you compete for customers whose paychecks are shrinking? You either keep your prices low or you try to further lower them. And that's the problem we're seeing in China. Remember, they're saying, "Look, you can't keep cutting prices because this is bad for the economy." Well, it's how you keep your business in survival mode.
Remember, we said this was going to happen. But look at what he's going to do. His priorities include sharpening the company's focus on merchandise, style, and design while improving the shopper experience and streamlining operations with technology. Michael, or can I call you Mike, that move isn't going to work because customers right now don't care about those things. Their paychecks are shrinking. They're worried about their jobs. They need value right now, and if you want to compete with Walmart and Amazon, Mike, you got to cut prices. And here's the evidence as we take a look at real retail sales that showed in blue. It's inflation-adjusted. Anytime you heard that we're real in front of a data series, we're going to put that up against average weekly hours of production and non-supervisory employees. And here's the real issue that's facing Target and other discretionary retailers: hours worked have been on the decline. And you can see, going back as far as 2022, real retail sales dropped. They've been negative largely the entire time. We saw a big drive here to front-run the tariffs, and now they're rolling over again. Customers aren't worried about the experience unless, Mike, the experience means they get to the register and they're paying less money and their checks go further. I think you're going to face a lot of headwinds here.
But again, everybody thinks if the Fed just cuts rates, that things will get better. And I want you to understand that there's a major problem with this because the economy isn't working and nobody has answers. So they're turning to the Fed. And on Friday, we're going to find out because a wager for a half-point rate cut reduction faces tests of power remarks. And I guarantee you everyone around the world will be tuning in and listening to what the Fed chief has to say because this is again a major issue impacting the economy as it's all coming down to rate cuts. Can rate cuts save the day? Well, we'll soon find out.
Now, you may have heard we're changing the way people trade. Let's talk about our True Reports and that trade on DBA. Well, first went out to our Momentum Timer Pro subscribers. Now, every day we take a look at the momentum, those technical indicators, and we pair it with the trend. When we see those indicators rising and the trend rising, that goes on our report. And again, we review all of our trades every day and we give our opinion on which trades we think are the best for our subscribers. Now, the following day, we saw machine positioning move, and that's on our CTA Timer Pro. Now, every day, we take a look at how the machines are positioned. But what's different about our report is we look at a historical overlay of how the machines are positioned versus where they should be positioned. And we see discrepancies in that. Well, that triggers a signal on report. But again, we review each and every trade.
And right now, both of our reports include our Meta Strategy, which is an advanced trading system that combines all nine professional trading strategies into a single intelligent signal generator. It provides 31 times more frequent buy signals than individual strategies while maintaining high quality through multi-strategy consensus. And it pulls in the Bravo 9, Turtle Trading, 200-day moving average cross, the Golden Cross, trend pullback, RSI divergence, 5-20 EMA cross, channel trading, and Fibonacci retracements. It's optimized for swing trading with a target hold period of 2 to 15 days. It generates over 155 signals per year and has a success rate of 55%. And my friends, that's far better than any of those strategies on their own with fast profit taking.
Now, you get the daily report, you get the tradable signals, you get my opinion on the best trades. We give you risk control levels and update them, a full tracking of all our trades and returns, a weekly update. And again, here's the most important part. If you grab those links in the description below and use the coupon codes, you get a free 30-day trial. And with that, I'm Steve Van Meter. Thanks for watching. Thanks for being fans. Bye now.