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ISM Non-Manufacturing Negates Recent Economic Optimism; Bad Economic News Is Good For Stocks
The ISM Non-Manufacturing index was released today and reversed the presumably good data contained in the ISM manufacturing index from two days ago. How the economy can look good one day and worse two days later, only the administration knows. Of note was the actual NMI number which came in at 50.6, a decline of -0.3 from September, and lower than the 51.5 consensus estimate. More troubling is that the Fed members, which many had expected to focus on the positive news released previously, will now be back to their schizophrenic, QE and stimulus-happy selves.
Also notable was the accelerating weakness in employment (41.1 vs 44.3 prior), inventories (43 vs 47.5) and increasing prices (53 vs 48.8). So as even more inventory destocking continues, prices continue grinding higher squeezing margins. Ignoring the employment number (which is a lagging indicator, and will continue lagging well into 2012), there is nothing positive that was disclosed in this report. Yet the market shot higher. Why? Because the need for a second stimulus and continued Fed softness is now back to crisis levels. So as the economy continues collapsing, the ponzi construct that is the market continues melting up. Welcome to the lunacy of Wall Street.
Of course, this can just be a headfake to the Fed's action today, which is presumed to have seen this data in advance. Keep a close eye out on
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What I love is ISM manufacturing gets all the play while ISM Services is put in the backseat
As if we live in the US economy of the 60s and 70s. Much easier for government to "stimulate" short term life into manufacturing (Cash for Clunkers) than the service economy.
Plus making stuff that other people want still works at times - exporters doing ok all things relative. What a concept. Thankfully we've moved away from that to a finance based, daytrade my home economy. Only costs a few trillion to stimulate.
It's all about the dollar.
It's insane just how correlated the SP500 has become to the USD on a seemingly tick for tick basis. At 10 am, dollar spikes only to quickly reverse...stocks drop only to quickly stop and gap up.
The utter lunacy of this world continues to astound and dismay - how f*cking stupid can people continue to be?? we have way passed what i had dared imagine was the upper-bound of sheer retardation in this country.
For people who see clearly the lies and manipulation, it's astounding that others can not. Is it not clear as day? There is a larger psychological dynamic going on here that to the sane and informed is, for lack of a better word, insanity and down right delusional.
I often say that leaders lie in order to give permission to people to believe the lie. The sane don't understand this concept because it flies in the face of how they see the world. Lies are the barrier to truth. To someone (a person, a family or a country) who doesn't wish to face reality but rather remain in denial, they need some help dealing with the pain of their cognitive dissonance.
When their authority figures (President, Fed, Treasury, Corporations etc) tell them lies, it gives them permission to continue to lie to themselves and ignore what is obvious to you and I. We've all done it with bad relationships and jobs, to name a few examples.
Thus the reason why this insanity has gone way past the edge of the cliff without total destruction. In fact, view this as the ultimate road runner moment. The road runner doesn't fall until he notices he has no support. Enable him to stay in denial and he can go a long way without falling.
Fiat currency systems are based upon belief and faith, sane or otherwise.
agreed on all points - except its the coyote over the ledge who is about to look down...;)
if QE 2.0 is announced today, i pile into metals as dxy obliterates, followed by risk assets as people realize wtf is happening. if it is not announced, risk assets obliterate anyway.
only one logical end-point for risk.
LOL
I was thinking coyote and wrote road runner. Actually we are both sorta right. The road runner regularly defies the laws of physics while Wile E Coyote eventually is defeated by gravity. Wikipedia has an interesting section on the "Laws and Rules" regarding this cartoon (beneath the "List of Episodes") that is a must read with the current insanity in mind. A road map to denial.
Beep Beep!
http://en.wikipedia.org/wiki/Wile_E._Coyote_and_Road_Runner
Agreed. It is a macro-psychological coping mechanism at work here. We are programmed to have a set of beliefs. In this case it's our faith in the stability of our financial systems. If our reality strays too far from our default position there is a 'cognitive dissonance'. We can face this head on and pursue a better course, or we can remain in denial until the bitter end. Belief and faith in the absurd won't change reality. It will assert itself. Unfortunately, those of us who have chosen truth over delusion can't get off this crazy train and the journey to it's ultimate destination will be painfully slow.
Unfortunately, those of us who have chosen truth over delusion can't get off this crazy train and the journey to it's ultimate destination will be painfully slow.
The midnight train to crazy is barreling down the tracks with all the stops pulled and no engineer or conductor on duty. If ever the term "ignorance is bliss" needed to be applied to a situation, this would be it. Once recognized, only a frontal lobotomy will exercise the truth from most of us.
Toot toot, all aboard!
http://www.youtube.com/watch?v=zJflu7z4QyI
http://www.youtube.com/watch?v=poomuKzSGZA
http://www.youtube.com/watch?v=lwvCwiThcFw&feature=related
All the #'s are massaged. I will go as far as most corporate books are cooked. They change the accounting rules whenever is suits the market. How these companies are crushing the numbers and the economy is improving must not look at all the businesses going under, the consumer retrenching and houses vacant. This bubble obviously will continue the parabolic curve until it's too late. It's hard out there for a pimp.
War is Peace. Freedom is Slavery. Down is Up.
We're not crazy, we're just outnumbered.
For now.
Bingo.
If the "fabulous profits" were REAL and had any chance of lasting into the future, don't you think the S&P 500 dividend yield would be, say, higher than 1.80%?
That dividend yield is a huge "tell".
well, take a look at the trucker CNW and fad-jean-machine TRLG. i think both good proxies for the actual economy - both getting crushed today.
On the point about margins. I've noticed many companies which were first movers in the cut everything to boost profit camp, are now seeing margin flattening or the beginning moves of compression.
Contrary to what they say on CNBS and the Fed, it doesn't need to be an import to see a price increase due to the knock on effects of a falling dollar. Rising commodity costs (all priced in dollars, with oil as the big daddy) are a rising tide that will lift all prices. Couple that with the observation that all debt based purchases are seeing rising prices due to liquidityfest 2009, and you've got ye margin compression going into the new year and beyond.
And TraderMark hits the key issue here square on the head, manufacturing ISM (13% of the economy) gets all the attention but services ISM is just dismissed as another lagging indicator.
We need ISM Mfg at 80 and ISM Services at 20 for about a good decade.
Then wake me up; otherwise I'm drinking Kool Aid as I walk around the Matrix. Economic metrics are awesome up in here. Boo yah.
TD, take a look at the action in the UUP Nov 23 calls, any idea what this means with the Fed meeting today?
Between the renewed negatives in today's ISM and the amount of voters last night who went repub due to economic worries, you can bet there is hysteria in the WH today - Stimulus 2, cash for clunkers, houses, lawn mowers, porn will all be at the front of the list of things to come.
And the markets play on... one wonders whether the DJIA will reach the magical 100,000 mark by the time the cockaroaches take over the earth.
Two Dem Governors went down, two Dem Congressmen got elected in NY and the SF East bay. About a tie.
I think the voters perspective is states are in way worse shape than the federal government, since states can't print money.
Any sitting governor is a target. I can tell you in Calif. if Broke Ass Arnold was up for a vote right now... he would get terminated... It is a bad time to be a governor...
Revised downward already... so classic!!
Why restock inventories if the cost of carrying inventory is rising?
Small businesses rely on vendor credit and credit cards to carry inventories. If the vendor's credit dries up, no more CIT factoring of receivables, JPM and Citi laughing at them on credit apps, then they are less able to extend net 30 terms to small businesses.
If vendor credit is cut and small business' credit cards are jacked to 29.9% and the credit limit cut... who in small business can add inventory?
I know about half the work force (60 million?) is employed by small businesses (500 or less employees). What percentage of inventory is carried by small business as opposed to large corporate entities, I have no idea. Maybe a business analyst guy could clue me in on that.
It is just a game that GS plays, the numbers are irrelevant, all they do is lure in more suckers to short, then they gun the market higher and trigger the stops and then you get more forced 'buyers' to push the market higher on the back of any numbers good or bad.
Then rinse, repeat for the next lot of sucker longs or shorts.
today is nothing more than a celebration of the coming stim-pack. Gotta have the political capital to accomplish it right???
BTW what happened to actual math questions?..these are far too easy.
MS
With good bad news like this, those 10,000 Dow hats will go back on the bobbleheaded noggins of the CNBS crew by Friday.
The ponzi construct has survived October. Onward and upward, I say. Damn the torpedos....etc., etc.
Rinse and repeat. To prevent a massive failed auction( you have to be a stupid idiot to buy long-dated bonds) the primary banks bought Treasuries last week and the week before. The primaries, PIMCO,Goldman,JP,etc. are told to buy this shit and then they dump the bonds on the open market where the FED sops it up with all those forced fees (3 years in advance)on existing banks. How? They trade Mortgage backed toxic trash for treasuries. There is a handoff in the Federal Reserve. This is how the FED monetizes nothingness and how Quantitative easing is not needed anymore. The primaries front the purchases with cash, but then trade baseball cards in the FED where nobody can see or audit them(yet we hope.)
Banks then go to the casino and buy swaps, stocks and oil with their new cash and buy things that probably have fractional better value than the mortgages.
Next week:
same crap starts all over again. We may have another fall off to drive the risktrade into bonds to help the bid-to cover.
http://www.marketwatch.com/story/treasury-to-auction-record-81-billion-n...
these numbers mean shit. thats all.
Unrelated - Cuomo files anti-trust suit against Intel - NYTIMES
http://www.nytimes.com/2009/11/05/technology/companies/05chip.html?_r=2&...
just when you thought it was safe to get back in the water to short....
That was the whole idea... shorters were getting too wary and not playing the sucker game any longer, so they had to have a down move to lure shorters back in again
Gee you can hear a pin drop on the floor... Least the laws of physics still apply to the pin, I wonder how long that's gonna last.
Pardon me Tyler but the Ministry of Truth says "Investors rushed into stocks after stronger reports on service industries and employment eased two of the biggest worries about the economy."
http://finance.yahoo.com/news/Stocks-jump-as-services-apf-203409510.html...
Therfore this is in fact good news and explains why the market shot higher.
this fixation with the manufacturer's index is so truman era.....our economy is 19% manufacturing with a continued declining trend....who gives a crap about the manufacturing component??
the non-manufacturing is 4x more important and it shows a decline.....
Don't bet on commodities then. Unless you are short commodities.
Hey, Ben. Haven't seen you post in a while. Things going well?