Archive - Sep 15, 2015

Following June's 0.8% surge in business inventories (the most in 4 years) which surged inventrory-to-sales to 1.37x - the highest since 2009 - July's data confirms the recession looms large as inventory accumulation appears to have hit its limit, up only 0.1% MoM (inventory-to-sales hovers at 1.36x - historic recession levels). Remembering that this data is lagged by 2 months (in the face of disastrous Empire Fed inventory collapse, auto production collapse and retail sales weakness), it appears the "if we build it, they will come" economy just got slapped in the face with the reality that 'Field of Dreams' was a fiction, just like The US 'Recovery'. Time for The Fed to hike rates?

It seems increasingly likely the next Global Financial Meltdown will arise in the FX/currency markets. The core paradox - that central banks can't control both domestic and global FX markets with the same set of policies - cannot be resolved by printing $1 trillion, or even $5 trillion. Printing money to fix one problem leads to another set of problems that are only made worse by additional money-printing.

Industrial Production missed expectations notably, dropping 0.4% MoM (the 6th of the last 8 months) missing expectations of a 0.2% drop (and notably weaker than the +0.9% upward revised July print). Thjis is the biggest MoM drop since August 2012. The big driver of the decline - just as we warned of nightmares ahead - was auto assemblies which plunged to a 4-year low by the most since Jan 2009. The year-over-year rise in IP is just 0.9% - flashing yet another recession-looming indicator.

Let's hope Dr. Yellen has the right medication this Thursday to cure the paranoid investing world of its latest Fed-induced psychosis.

It appears a slew of terrible data is just enough to re-ignite the bad-news-is-good-news... more data to come soon.

Despite some strangely optimistic expectation of a -0.5 print, September Empire Manufacturing printed -14.67, showing absolutely no hockeynesian dead-cat bounce mean-reversion. Hovering at the worst levels since April 2009, the underlying data is a total disaster. New Orders remain firmly negative and inventories collapse (who could have seen that coming?), and even more concerningly, employment and average workweek plunged into negative territory for the first time in over a year. Simply put, this report suggests total carnage in the manufacturing sector and, just as we have pointed out (most recently here and here), the exuberant inventory over-accumulation of the past few years - from Fed-deluded malinvestment - is about to come crashing down.

Following Gallup's and BofAML's clear indications of weak retail sales, it should be no surprise that retail sales in August disappointed printing +0.2% MoM (missing +0.3% expectations). This dragged the YoY retail sales change down to a recession-looming +1.6% print. Ironically, while most headline data missed, the GDP-dependent 'control group' rose modestly more than expected (+0.4% vs +0.3%). Since this is the last major data point before The Fed's big decision, it would appear another nail in the coffin of a rate hike was just struck.

Meanwhile, in Frankfurt...

One survey recently recorded the highest level of expectations for a market rally in its history. If indeed a cyclical top in stocks has been formed, or is in the process of forming, this data series will likely require either a greater crash or, more likely, much more time to fully correct its bullish excess. We would not be surprised if such a scenario unfolded. If that’s the case, you’ll really see what a hated market looks like.

• China stocks resume sharp slide as economic worries mount (Reuters)
• OECD head says sees further cut to global growth forecasts (Reuters)
• The U.S. Dollar Is Gaining Like It's the 1980s — For Better or Worse (BBG)
• Glencore Slumps to Record Low, Erasing Gains Since Debt Plan (BBG)
• Woman killed, 400 homes destroyed by California wildfire (Reuters)
• Why Morning Is the Worst Time to Trade Stocks (WSJ)
• German Investor Confidence Damped by Weaker Emerging Markets (BBG)

This gold coin 2000 years ago buys the same amount of bread today as it did when Jesus Christ was born. That is a real safe haven asset…

Almost two weeks after we explained why any hope for a QQE boost by the BOJ is a myth, and that any increase in monetization will simply lead to a faster tapering and ultimately halt of Kuroda's bond purchases the market finally grasped this, when overnight the BOJ not only did not easy further as some - certainly the USDJPY - had expected, but kept its QE at the JPY80 trillion level and failed to offer any hints of further easing that many had hoped for, pushing the Nikkei down from up almost 400 point intraday to virtually unchanged and sending the USDJPY back under 120. JGBs also traded lower on concerns there may not be much more QE to frontrun.