“By the way, does anything other than ‘trouble’ rhyme with ‘bubble’?”

Here Comes The U.S. Slowdown …How Bad, And How Long? Ian C. Shepherdson Chief U.S. Economist, High Frequency Economics

The Root Of The Problem

Soaring Sales Have Driven Prices Up

Soaring Prices Encourage Equity Extraction…

…And Equity Extraction Boosts Spending

Meanwhile, Construction Has Boomed Too

But Homebuilders Became Greedy

Now, Soaring Inventory Is Depressing Prices Now, Soaring Inventory Is Depressing Prices

…As Prices Slow, Real Mortgage Rates Rise

…And As Real Rates Rise, Home Sales Fall

Put It Another Way: Homes Are Expensive

Plunging Home Sales Will Hurt Retailers

Soaring Gas Prices Also Hurt Consumers

Lower Confidence Implies Slower Spending

Retailers Are Already Shedding Labor

Broad Payroll Growth Is Slowing Too…

…With More To Come

Meanwhile, Manufacturing Is Doing Well…

But It Won’t Last, As Higher Rates Bite

The Manufacturing ISM Will Drop Next Year

Expect A Sustained, Broad Slowdown

In The Meantime, The Labor Market Is Tight

Faster Wage Gains Are Pushing Up Costs

Slower Growth, Rising Costs Hurt Earnings

Core Inflation Has Clearly Picked Up

Rents Aside, Not Much Is Happening

The Fed Can’t Stop Rents Rising

The Lower Dollar Is No Inflation Threat

The Good News: The Trade Deficit Will Fall

The Bad News

Summary Growth will slow further; housing first, then industry The Fed is done, easing starts late 06/Q1 07 Rising labor costs threaten earnings more than inflation Treasury yields are set to trend lower; stocks are in trouble