Archive - Sep 17, 2013 - Story

The July statement from the FOMC presented the following snapshot of the economy, "Information received since the Federal Open Market Committee met in June suggests that economic activity expanded at a modest pace during the first half of the year. Labor market conditions have shown further improvement in recent months..." but as Stone McCarthy notes, tomorrow's FOMC post-meeting statement could well be less upbeat in tone, with hints of a slowing in the pace of improvements in the labor market, housing, consumer and business spending, and inflation remaining well below the 2% goal. A look at the housing and spending data certainly raises eyebrows but it is clear that the Fed remains cornered by deficits, sentiment, technicals, and international ire.

Prospective buyer traffic rose in all regions but the National Association of Homebuilders key sentiment index missed Bloomberg median expectations by the most since April. Future single-family home sales expectations dropped notably and this is the first time since April that the index has not risen. One data point does not make a trend change but given mortgage rates, mortgage apps, and home sales, and now the expectations for future sales, it will be hard for many to keep the housing recovery dream alive... even if the Fed rolls back all their Taper talk and doubles-down on QE...

A snapshot of the top Bloomberg news from five years ago shows something very unusual - an entire screen of negative headlines. Of course, back then, bad news was indeed bad news... in our new normal, a smorgasbord of cataclysmic event, terrorism, and systemic risk possibilities would likely be reason to BTFATH as it guarantees the Fed will come to the rescue... (just as they did eventually last time).

Perhaps confirming the collapse in consumer confidence we saw last week - that the market shrugged off on the back of Summers - ShopperTrak, which measures store traffic in 60,000 locations world-wide expects retail sales in November and December to rise by only 2.4%. As the WSJ reports, this will be the worst holiday season since 2009 (which last Friday's dismal +0.1% ex-Autos rise in retail sales for August supports). Retailers are clearly anxious with Kmart already airing its first holiday ad - 105 days before Christmas. As ShopperTrak notes, consumers are worried about a host of issues including rising interest rates that has "got people feeling more tenuous about the holiday season."

When the half life on your stock boost from dumping your CEO is measured in days (especially when coupled with less than brilliant M&A transactions) what do you do? Why... resort to the oldest trick in the book: dividend and buyback (most likely leveraged)

*MICROSOFT SETS $40 BILLION BUYBACK, BOOSTS DIVIDEND 22%

It seems ValueAct is active already - and doing all they can to cover the FUBAR move in Nokia. But  - for all those buying on this news - this is merely extending the time-period of a prior buyback program - so just the dividend boost of 22% (23c to 28c with expectations of a shift to 26c) counts.

If the Fed was looking for any confirmation as it entered its two day meeting that its monetary machinations are boosting inflation, at least according to the BLS' hedonically, seasonally-adjusted CPI indicator, it did not get it. August CPI just printed at a measly 0.1% increase from July, below the 0.2% expected, and down from 0.2% last month. This was the lowest monthly increase in overall inflation since May, and the biggest miss to expectations in 4 months. On a Y/Y basis overall prices roses 1.5%, below the expected 1.6% and well below the 2.0% inflation in July. Core inflation excluding food and energy rose 1.8% in line with the expected number, and higher than the 1.7% a month ago. Perhaps the best news is that according to the BLS, "the index for nonalcoholic  beverages declined in August, falling 0.1 percent." It is unclear what if any hedonic adjustments were used in this particular calculation. As a reminder, the Fed has been "targeting" 2.0% inflation, and failing. So since in the Fed's eyes inflation continues to not be an issue, how long until the Fed proceeds to target NGDP, unanchors inflation expectations, and finally launches Bernanke's helicopter as we speculated recently?

With Syria now quickly fading from the headlines and Wall Street believing that Yellen is a "shoe in" for the Fed, what headwinds still remain for the markets ahead...

European recovery propaganda may be humming (for the latest proof see today's German ZEW sentiment index which soared from 42.0 to 49.0 matching the all time high in the Dax), but when it comes to the actual economy - that place where commerce is conducted and where supply and demand curves intersect, the situation has never been worse. And not only unemployment which is at a persistently record high for the Eurozone, but actual transactions, in this case in the form of car sales. As AP reports, for the first eight months of the year, passenger car sales in the European Union were off 5.2% to 7.84 million compared with the same period last year, the European Auto Manufacturers' Association said Tuesday. That's the lowest January-August figure since the group started keeping track in 1990.

• Less Tapering Becomes Tightening Credit No Matter What Fed Says (BBG)
• Yellen Is Now Top Fed Hopeful (WSJ)
• Syria - A chemical crime, a complex reaction (Reuters)
• More ECB collateral: Wrecked cruise ship Costa Concordia raised off rocks in Italy (Reuters)
• Aging Boomers Befuddle Marketers Eying $15 Trillion Prize (BBG)
• Abe Turns Pitchman, Says Japan Is Now A Buy (WSJ)
• Ex-JPMorgan Employees Indicted Over $6.2 Billion Loss (BBG)
• Barack Obama blinked first in battle for Lawrence Summers (FT)
• Berlusconi to support Italian government in video message: sources (Reuters)
• How China Lost Its Mojo: One Town's Story (WSJ)

Overnight trading started with Asian markets continuing where yesterday's S&P 500 fizzle ended, wishing Summers could withdraw from Fed running again, as both the Nikkei and SHCOMP were well lower by the close. Perhaps all the easy multiple-expanding, headline-driven money is made, or perhaps economic fundamentals will finally start having to justify a 17x multiple on the S&P (a good is good regime for those who may be too young, or old, to remember), but overnight US futures were dull, and no doubt anticipating today's start of the "Most important FOMC meeting ever", which concludes tomorrow with an announcement by the Fed of what and how much (if any) tapering it will commence with an eye toward halting QE next summer, although more realistically what will happen is an Untaper being announced before then. While the start of the FOMC meeting is the main event, today we get CPI, TIC flows and the NAHB housing market index. Today's POMO is another modest $1.25-$1.75 billion in the long-end sector.