Dallas Fed Provides Latest Confirmation Of Corporate Margin Collapse, As Prices Paid-Received Difference Hits Fresh Record
Everywhere one looks (assuming one is more than just a market momentum, block order frontrunning algorithm... or a Deutsche Bank "strategist" of course), one sees relentless evidence of collapsing margins. Most recently, this was the Philly Fed, whose Price Paid less Prices Received index spread came at the highest since 1979. Well, at least it wasn't a record the Koolaiders said. Alas, that rebuttal will not work for the Dallas Fed. The latest diffusion index, which came at 17.5, on expectations of 13.0, confirmed two very much expected things: i) economic "growth" continues to be predicated on inventory stockpiling, as has been the case for the past two years, which is nothing but a highly speculative bet that demand will eventually pick up (and we pray the Dallas Fed respondents use FIFO not LIFO accounting), and ii) margins are getting crushed. Recreating the Philly Fed Prices Paid less Prices Received index shows that the differential of 45.50 is now at all time wides. Notably, the last time the spread was at or above 45 was in early 2008 following which everything went to hell. Expect to see many more diffusion indices confirm the relentless erosion in corporate margins, which in turn will result in either accelerating end-user inflation (unlikely), or imminent margin and EPS downside guidance, which even a reluctant Wall Street will have no choice but to take into account over the next several weeks.
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