Archive - Jul 31, 2013

Presented with little comment aside to ask the rhetorical question - just what is the 'value' of the consensus?

One of the unpleasant side-effects for the Fed's forecasting (insert laughter here) abilities, is that following today's GDP revisions, H1 annualized GDP is now 1.4%. It means that there is no way that the economy can grow fast enough in the second half (especially with such early disappointments to the second half as the just released Chicago PMI miss) to meet the Fed's forecast growth of 2.3%-2.6%. Which, in turn, means more egg on the face of Bernanke and the FOMC's 2013 forecasts. Which is precisely what Goldman just said.

So much for that "priced in" strong start to the second half. All those expecting a major move higher in the Chicago PMI after its June plunge from 58.7 to 51.6 will have to defer their hopes for one more month, following the headline print of 52.3, which missed expectations of 54.0. However, the headline number doesn't do the PMI full justice, because while the growth was driven by all the wrong reasons, namely margin crushing Prices Paid surging from 59.9 to 63.3 - the largest two month jump since 2010 - the much more important trifecta of New Orders (54.6 to 53.9), Production (57.0 to 53.6) and Employment (57.8 to 56.6) all dropped. What this means for the ISM is not exactly clear due to the long-running tradition of baffle with BS, but on the surface it is hardly optimistic... which likely means ISM will explode higher.

Think the pick up in Q2 GDP was due to the desired increase in end consumption? Think again. Following the full data revision, Personal Consumption as a component of GDP dropped from 1.54% in Q1 to 1.22% in Q2, offset however by an increase in fixed investment which rose from -0.23% to 0.93%. In fact, aside for Q3 and Q4 of last year, Personal consumption in the just completed quarter was the lowest goin back to Q2 2011 when PCE was 1.03%.

Curious how the comprehensive revision of GDP looks like? Here's how: following the "revised data", Q1 GDP in nominal terms stood at $16.535 trillion. Previously, it was $15.984 trillion. And that is how you add $550 billion in "growth." More importantly, here is the full breakdown of GDP on a quarterly basis: of note - Q1 2011 GDP growth was revised from +0.1% to -1.3%: close call with recession there.

UPDATE: Markets are reacting in a very 'Taper-On' way with Gold down, bond yields surging, and the USD rising (with stocks leaking lower)

The Q2 GDP printed at 1.7% compared to expectations of 1.0%, however this was entirely offset with the Q1 revision from 1.8% to 1.1%. Since the series is being entirely revised, it is safe to say that these are Apples to Oranges numbers. Q1 was revised to the worst miss in 27 months...

While the ADP jobs number is noise, it is no more noise than the BLS' NFP monthly print. And since the NFP jobs number has been targeting the 200K support level for all of 2013, with the 6 month average at precisely the taper-permissive 201K, it was natural that the Mark Zandi-supervised ADP would ultimately revise its data to substantiate the BLS message, which is simple: taper on. Sure enough, ADP beat expectations of 180K coming at 200K, while the previous number of 188K was revised to 198K.

In a few minutes, the BEA will revise US GDP figures going back nearly one century, for one simple reason: the economists in charge will do all they can to reconcile the observed drift between GDP and unemployment in stark refutation of Okun's Law, which we have previously disclosed, and which if left unattended will continue crushing the credibility of said economists. Since all it will take are some number additions to "generate" growth, the result is predictable. But what specifically are the upcoming changes to the various accounts and components? Bloomberg's Joseph Brusuelas explains.

Today's broad "rewriting of history" GDP revision is set to "boost" US GDP by about 3% cumulatively (or about the size of Belgium's economy) and shave off 1-2% from US GDP. That's great. For the sake of the world, however, we hope that the rest of the developed (and less than developed) world's countries promptly follow in America's footsteps and fudge their own numbers post haste because things are rapidly getting out of hand, as the following chart conveniently reminds. Nowhere is this more so than in Japan, where as has been the case now for almost a year, Goldman Sachs, the central bank and local government (in order of decisionmaking importance) have all doubled down on their "all in" bet that the only thing that fixes recorder debt is moar recordest debt.

• Ackman Says Pershing Square Takes 9.8% Stake in Air Products (BBG) - So is APD Carl Icahn's biggest ever short yet
• Latest Hilsenplant: Summers Hedges His Doubts on Fed's Bond Buying (WSJ)
• China Stocks World’s Worst Losing $748 Billion on Slump (BBG)
• U.S. Spy Program Lifts Veil in Court (WSJ)
• Abenomics on the rock again: Japan July manufacturing PMI shows growth at 4-month low (Reuters)
• EADS to be renamed Airbus in shake-up (FT)
• Goldman's GSAM has significantly increased its exposure to European equities (FT) - there is a reason why this is Goldman's worst division
• Japanese Megabanks Post Mega Profit Gains (WSJ) - when one excludes MTM impact from rate surge of course
• Ex-workers sue Apple, seek overtime for daily bag searches (Reuters)
• Hong Kong Yuan Deposits Snap Eight-Month Increase on Cash Crunch (BBG)
• Downtown NYC Landlords Remake Offices in Shift From Banks (BBG)

Obama wants to give middle-class Americans a ‘grand bargain’. Roll up! Roll up! You won’t believe your eyes.

Lump this into the mix with the challenges around energy, the instability of the global banking system, the high unemployment rates, particularly among the youth and interest rates at unsustainably low levels, it would be reckless to report that the world economy is either on the brink of or on the road to recovery. Gold is a finite resource, the Chinese central bank continues to acquire gold quietly and without declaring.....for now.

It’s worth repeating: In the shadow of this game, gold looks like a solid investment.

As readers are well aware by now, at 8:30 am today we get to see the rewriting of US GDP history back to 1929 with the revisions from the BEA. It’s a big last day of July with the Fed meeting coming after the GDP release. For GDP, real growth is expected to be as low as 1.0% in Q2. Opinions vary widely on today’s GDP number with one major US investment bank’s estimate as low as 0.2%, a number of bulge bracket banks at 0.5% while there are also plenty of economists above 1.5%. It is not news to anyone that nominal GDP is very low at the moment - especially in a world of nosebleed high debts - and today could see this have a 1-handle YoY (and at best a 2-handle) - a level not even normally seen at the depths of most recessions.