"The fact that it's a public-private partnership, where public is going to pay and private is going to benefit...it's a very small amount of the private that gets that benefit. This is not a real infrastructure plan. This is not 1930's style; it's not the Hoover Dam. It may have an initial positive initial impact, if they get it over the line," he said — emphasis on "initial" and "if."
Gambles' take is that the U.S., and even the global economy, is NOT in good shape. Exactly the opposite, in fact. His key measure: total private credit, which he zooms-in on as the largest driver of economic and commercial activity.
Credit growth, according to statistics Gambles has studied, is struggling globally, ''but not nowhere near so badly as in the States."
One of the biggest red flags could be the U.S. auto sector: An increasing number of analysts are warning it could be an accident waiting for a place to happen. March sales hit 16.5 million vehicles, slowing down for the third month in a row. Some analysts think the market has peaked, after hitting a record 17 million vehicles last year.
Inventory levels are rising, discounts are increasing, and there's likely a flood of used cars set to hit the market. Morgan Stanley warned recently that used car prices could plunge anywhere between 25 and 50 percent.
That's almost guaranteed to hurt profits at automakers. And, S&P warns, because consumers are already so leveraged to automobiles, there could be a wave of auto-lending defaults.
This isn't another potential housing bubble bursting, but because of the supply-chain effects, the auto sector could have spillover consequences for the broader U.S. economy.
Gambles is blunter: "What that means is the States is heading for a recession." The auto sector, in Gambles' view, isn't a leading indicator. Worse, "it's usually a live indicator."
"It's the change in the rate of private debt that is the biggest single driver of GDP. So, if we get a slowdown in debt, we get a slowdown in GDP, if we get any kind of flattening off or contraction in the rate of creation of private debt, that is an economic disaster," he said.
Gambles says a decade of cheap money from the world's central banks has gone into financial markets, but not enough has entered real economies. Which is why we're still waiting for the private capex cycle to kick back in, and why central banks are still largely doing the heavy lifting.
The failure of easy money policy, according to Gambles, has been not being able to recognize that it's not enough to just pump out credit. If the demand isn't there, it doesn't matter how much credit is being made available: nobody's going to borrow. That's similar to currencies and export competitiveness — after a point, it doesn't matter how cheap or weak your currency is, if there's no demand, it's not going to help your exports.
The only place where there is credit growth is China.
''China is basically carrying the entire world's GDP on its own shoulders," he says.
China flooded its slowing economy last year with a record amount of credit worth almost a third of GDP. That's pushed leverage massively above China's private indebtedness levels of 2008.
But Gambles warned it's almost impossible for China to keep this up. And if it eases back credit growth, watch out.
"In China, in the past, because it is a command economy, the switch is turned on, then it's turned off, and it's turned on. It looks like China's threatening to turn that switch off, which if it does, the whole world is then suddenly seeing a very very contractionary policy."
In China alone, the flood of credit is already having unintended consequences, stoking yet another bubble in real-estate, for example. There's also the huge run up in prices for iron ore and coal, two commodities still in heavy over-supply.
That's made China "very vulnerable to anything actually pricking the bubble," Gambles said.
And if the China credit bubble pops... Well, that's like the one single leg the world is standing on buckling at the knee.
So, head for the hills before the volcano blows? Absolutely, says Gambles. The highground, he said, can be found in U.S. Treasuries and gold — the safest assets for investors. Managed futures/commodity trading advisors are probably wise, as well.