The Law of Gravity

Sir Isaac Newton is credited with formulating the law of gravity after watching an apple fall from a tree.

He asked why the apple had fallen straight down rather than sideways, or even upwards?

The law of gravity encompasses apples on a tree to satellites shot into space.

What goes up eventually comes down.

We have witnessed the same general rule with great empires, powerful corporations and economic conditions.

It is difficult to continue to ascend or to maintain a high standing over time.

Gravity eventually rules.

Look no further than what we have witnessed with cryptocurrency company FTX in the last week or so.

Its FTT crypto token has lost over 98% of its "value" in a little over a year. It is essentially trading where it was when it was introduced.

It is estimated that investors have lost BILLIONS and BILLIONS of dollars.

It has been reported that the top 50 customers of FTX alone have lost over $3 billion. 

Gravity at work.

As we are about to start another year how much will the law of gravity apply to other issues that might be important to us?

A couple of charts to suggest that the forces of gravity may come into play.

The ratio of US housing costs to income.

If we do not see incomes rise substantially or lower mortgage rates, housing prices will be falling in 2023.

Mortgage demand has already fallen to the lowest level since 1997.

Credit card and other consumer debt have expanded massively over the last year.

This indicates that the consumer is under a great deal of pressure and consumer spending may have to tighten considerably in 2023.

Consumers loans (blue line) and personal saving (red line).

To make matters worse, the average interest rate on credit card debt has risen to the highest level since this measure was first tracked beginning in 1994.

In the meantime, retail inventories have grown substantially (up over 20%+) over the last year as supply chain issues improved. Retailers have a glut of inventory just as consumers are starting to come under pressure.

This may mean more holiday sales than last year as retailers try to turn that inventory to cash.

Source: https://www.axios.com/2022/11/18/holiday-shopping-sales-discounts-supply-chains

Further good news is that unemployment is near the lower end of historical averages.

However, this is partially due to changes in the workforce which is seeing thousands of older baby boomers retire and a lack of younger workers filling the labor force gap.

Consider the growth in the labor force over the decades.

The civilian labor force in the 2020's is growing on average at only .3% per year.

This is a mere fraction of the 2.6% it was growing at in the 1970's.

The large increase in the 1970's was caused by baby boomers entering the workforce.

The small increase in the labor supply in the 2020's is due to those same baby boomers retiring.

Declining birth rates over the last 50 years are the reason.

There is another country that is going to see huge impacts on its workforce in the future due to declining birth rates.

China has quickly become a demographic disaster.

Births have dropped by over 40% in the last five years. 

This is AFTER China abandoned its one-child policy and already in deep demographic trouble due to an imbalance between young men and women.

Source: https://twitter.com/simongerman600/status/1590088023064154113/photo/1

You have to wonder how long it will be before the Communists in China are in the bedrooms of its citizens forcing them to procreate?

Where else do I see a threat of the law of gravity in the United States in 2023?

I suggest keeping a close eye on layoffs at the major social media/internet companies.

They went on a hiring binge over the last decade and it intensified when the Covid pandemic and lockdowns greatly benefitted their business models.

Meta (formerly Facebook) would have to layoff over half of its current workforce to get back to 2018 employment levels. That is 36,000 employees.

Credit: https://twitter.com/eladgil/status/1589271330255699972

Alphabet (formerly Google) would have to reduce employment by almost 58,000 employees to get back to 2018 levels.

Credit: https://twitter.com/eladgil/status/1589271330255699972

 

Layoffs have already started at Amazon.

Its employment at the end of 2021 had doubled in the two years of Covid from 800,000 to 1,600,000 employees.

Source: https://www.statista.com/chart/7581/amazons-global-workforce/

Of course, Elon Musk has already started to lay people off at Twitter.

50% of its employees were laid off in the first couple of weeks after Elon acquired the company.

Twitter had about 7.500 employees before the layoffs began.

Source: https://www.reuters.com/technology/twitter-exec-says-50-employees-lost-jobs-following-acquisition-2022-11-04/

I don't know where the law of gravity will have the largest impact in 2023.

However, you can expect that it will.

It may be wise to keep a parachute close by should you need it.