Once again, it’s a tale of two markets. Tech is still shining and held up by AAPL, AMZN and Google. The SOX is still up there. But the Transports started breaking down. The Transports are unique because they have a 9639 high and a secondary pivot at 38 days off that high For the current leg off the 38 vibration it had a thrust for a first leg, it consolidated for a small secondary pivot and broke below the initial thrust. That is potentially very bearish. It is also on a different path from those tech high flyers.

But the big story of last week appeared to Macy’s. They had a bad earnings report and gapped down. Here’s my question. They topped last November, why worry about it now? Normally, this is the kind of bad news that would create a wash out low. But how could we have a wash out low on bad news when the VIX is so close to record euphoria?

Something is not adding up here. One part of the story it might be structural. The retailers had not been doing well, that’s not a secret. Is this the point of recognition where the crowd has figured out retail stores and malls across America are in big trouble? If so, we are all in big trouble. I don’t want to come here and pour cold water on your plans for Memorial Day weekend given its May. None of what I’m seeing is going to happen tomorrow. But if retail experts are right and there is a massive shift to online then commercial real estate is going to sow the seeds of the next recession. It always starts with real estate.

But there is another issue with the timing. As everyone knows, President Trump fired FBI Director James Comey. Thursday morning, it was none other than Varney on FOX Business who came on his morning show and was concerned that all the backlash is going to interfere with Trump’s growth agenda. I think he’s right. We are not going to stay with the politics of this but I think it’s safe to say the left has had many bones to pick with Comey. Both sides of the aisle thought he was doing a poor job. But now that Trump actually pulled the trigger the left turned up their opposition to the President to the next gear.

For the millionth time, I reference the Starbucks consumer behavior report after Ferguson. People don’t like this sort of thing. It has been a constant drip, drip, drip for months against this President. The market loved the Trump election and rewarded him with a great rally. But if the promises are not kept, there is going to be a huge backlash. I tend to think the big drop we had on Thursday morning could be the crowd finally getting tired of it. Yes, it did recover. That’s why I tend to believe my theory as opposed to the Macy’s theory, which dropped the same morning. But the retail problem is a valid concern. 

I don’t totally believe the experts who say malls are going out of business because of the transition to a total online economy. I believe retail is in trouble because of economic conditions. We’ve had years of an economy that has depended on the consumer far too much. We’ve also had eight years where GDP did not average 3% for a single year. There is a cumulative effect of this. If the public isn’t going to get relief from the massive increases in premiums for health care, how are they going to have money to go shopping? See how this works?

You have to dig under the hood and realize everything going on is one big circle or butterfly effect. If health care premiums go up $200 a month in many states, which is happening this year and the economy doesn’t improve, how is the consumer going to keep Macy’s in business? When a business cycle eventually turns, there isn’t one culprit but many. They all add up. Of course there is a big one but there are many factors. This time it will partially be structural but it is political as well. For those of you who have studied history you may recall Great Depression II in the late 30s came on a variety of factors. Number one, Roosevelt put the brakes prematurely on his stimulus and enacted a tax hike to keep the budget hawks happy in 1935.  Social Security payroll tax debuted in 1937. How many of you also realize unions became powerful and there were numerous strikes against manufacturing plants? Can we also say the recession was aggravated by Hitler’s aggressions?

What does this mean? Thankfully last month the jobs number was better but GDP was weak and most experts believe it will be better for the next quarter. However, nobody knows how it will come in. If the sentiment we’ve heard since Thursday is to be believed, the country is starting to go under a massive transition away from the way retail has operated since the end of the WWII. It’s a good time to revisit our friend David Stockman who does not believe Washington has their act together to the point they could enact tax reform legislation. We may not be getting a tax hike as in Roosevelt’s time but if we don’t get reform it will feel like a tax hike because the market and many companies who decided to invest with Trump will not get what they were promised.