Archive - Jun 1, 2015 - Story

With signs of cracks in the Equal-Weight S&P 500?s relative performance, we have more evidence that all is not necessarily as rosy as it may seem with the major averages near all-time highs.

s it any wonder Marin Le Pen's Front National Party is a) leading in the polls, and b) pushing for an EU in/out referendum? Whatever it is that France (and/or Europe) is doing, is not working. Despite all the promises, French unemployment has risen practically non-stop for 4 years and just hit a new all-time record...

Over the weekend, we first reported that none other than Nobel prize winner Robert Shiller said that in his opinion, unlike 1929, this time everything - stocks, bonds and housing - was overvalued. Curiously, none other than Goldman's chief equity strategist, David Kostin echoed this sentiment when in his latest weekly note to clients he said that "by almost any measure, US equity valuations look expensive. The typical stock in the S&P 500 trades at 18.1x forward earnings, ranking at the 98th percentile of historical valuation since 1976. For the overall index, the aggregate forward P/E multiple equals 17.2x, a rise of 63% since September 2011, compared with the median expansion of 48% during 9 previous P/E expansion cycles. Financial metrics such as EV/EBITDA, EV/Sales, and P/B also suggest that US stocks have stretched valuations. With tightening on the horizon, the P/E expansion phase of the current bull market is behind us."

The latest data makes us wonder: is the Chicago manufacturing snapshot no longer an accurate indication of what to expect from the US manufacturing sector, or, the real question, is one of these two data sets not not seasonally-adjusted enough. (that's of course rhetorical: everyone knows that it is the worse data that always needs more seasonal adjustments).

"In a forthcoming report triggered by an Associated Press investigation, the top watchdog at the Social Security Administration found the agency paid $20.2 million in benefits to more than 130 suspected Nazi war criminals, SS guards, and others who may have participated in the Third Reich's atrocities during World War II," AP reports.

The ECB did just as leaked in advance. Moments ago the ECB released its latest QE purchase data in which we find that total bond purchases jumped by over 8% in the month of May, to over €51 billion, from the previous average over just around €47 billion. This was driven by a jump in German (+8.9%), French (+10%), Italian (+7.4%) and Spanish (+8%) purchases.

US Manufacturing PMI dropped to its lowest since January (54.0 May vs 54.10 April) but rose modestly from early month preliminary indications. So despite the harshness of the winter weather and the port strikes, US manufacturing is worse now than at any time since the peak of piss-poor-weatheriness. New orders rose at the weakest pace since Jan 2014 and input costs rose, and Markit suggests The Fed wait on rate hikes and despite Bill Dudley's utterances, Markeit notes the "survey provides further evidence that the strong dollar is hurting the economy." Against this weakness, ISM Manufacturing - in all its seasonally-adjusted glory, rose and beat by the most since Oct 2014 with new orders rising (umm?) and prices paid surging. And finally, construction spending - having not risen for 3 months - it recovered considerably, spiking 2.2% MoM - the most in 3 years.

When the "very serious people" start to admit that the entire house of cards was held together with nothing but bullshit and propaganda, it may be a time to panic...

The six-month clock is up. OPEC is convening this week in Vienna, as it does every six months, to discuss and decide on how the group will coordinate. So what should we expect from OPEC’s upcoming meeting on June 5? More of the same. Having made the decision to fight it out, there is almost no reason to back off now. US shale producers have hung on longer than many anticipated. OPEC has inflicted a lot of damage across the US shale patch, but it hasn’t yet struck the deathblow that it had wanted. OPEC’s strategy could still work, but will need more time. That points to a stay-the-course approach heading into the June meeting and beyond.

For now, no catalyst - as if one is needed in this market - but gold and silver prices just spiked higher on heavy volume above $1200 and $17 respectively...

June is off with a bang, and a very busy week in the macro economic calendar, both globally and in the US, which culminates with the latest "most important ever" payrolls report, one which will surely be closely watched by a Fed which may hike as soon as a few weeks from now (but probably won't).

The Fed insists that Cinderella's carriage is forever golden, ignoring the increasingly obvious reality that the carriage is turning back into a pumpkin before our eyes. The Fed's magic was always a short-term fix, akin to over-fertilizing and over-poisoning our economy to create the illusion of massive growth in profits and stock, bond and home valuations. Now that the magic is wearing off, the reality is going to hit everyone who believed the fantasy of permanent asset bubbles especially hard.

This is not what the American Dream is made of... US consumers got a generous 0.4% rise in incomes in April - better than the 0.3% expectation - but none of it was spent! Personal Spending was unchanged - missing expectations for the 5th month of last 6. What this means is obvious, Americans are saving more (savings rate surged from 5.2% to 5.6%) and spending less... this is not the wealth effect creating 70%-of-GDP-consuming world that The Fed's textbooks say it should be...

It wouldn't be the new normal without a "Greek deal imminent" rumor/headline and so after overnight China-based strength gave way to selling pressure, another twitter-based rumor of "chatter" of a Greek accord (which given yesterday's comments seems extremely unlikely anyway) sparked a malt-up in EURUSD and US Equity futures. However, as is always the case, Virtu's algos as usual forgot to sell when the official denial occurred just a few minutes later.