Presenting The Inventory Schizophrenia Of The Chicago PMI And The Manufacturing ISM

Tyler Durden's picture

To many the significant beat of today's Manufacturing ISM was not very surprising based on yesterday's higher than expected Chicago Purchasing Managers Index. As most economists know, the Chicago PMI has traditionally been a spot on predictor of that other more comprehensive survey, the Mfg ISM. Indeed, as Wikipedia explains, "The Chicago-PMI survey registers manufacturing and non-manufacturing activity in the Chicago region. Investors care about this indicator because the Chicago region somewhat mirrors the nation in its distribution of manufacturing and non-manufacturing activity." Traditionally the correlation has been in the 80s and higher. Sure enough, anyone who simply bought the market on an expectation that the ISM would replicate the Chicago PMI won. Yet the biggest surprise was beneath the surface, where a more granular read indicates some very violent schizophrenia. As Goldman said earlier, when reporting on the ISM: "a sharp increase in the inventories index (from 48.7 to 54.1) explained 1.1 points of the 1.8 increase in the headline index." Said differently, nearly two thirds of the total beat came from a jump in inventory levels. Yet what happened in the Chicago PMI yesterday? Well: take it from the horse's mouth. The Chicago Business Barometer called it a "precipitous decline" after it plunged from 61.6 to 46.96, the biggest drop in years.

Which number is real? Is Chicago's much more focused inventory number accurate, in which case the ISM is massively misrepresenting reality, and inventory, not to mention the composite, is actually collapsing,  or, as we pointed out, is this merely a delayed reaction, and the ISM will now tumble following this abnormal jump in inventories, in which case next month's ISM will be in the 45 range, as predicted by the New Orders less Inventories leading indicator. One thing is certain: only computers can continue trading in which day to day datasets indicate an unprecedented degree of schizophrenia at the economic data manipulation level.

Manufacturing ISM Inventory:

Chicago PMI:


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hugovanderbubble's picture

Moodys will qualify as credit event - and junk bond (default rating) - The French-German Proposal .


IS a DEFAULT, not a reprofiling.

Repeat with me a default....not a soft reprofiling.

French Banks, German Banks,Landesbanks,Private german DebtHolders, u may have to pay ur risk taken. NOT EUROPEAN CITIZENS.

Severe Haircuts in Ireland and Portugal Coming + Spain yes SPAIN , because our 10yr bond will hit the 7%


Rating Agencies if you have , what u need to have ----PRESS THE F.g SELL key.



The game is not over for Shorts

This is the reason why  France wants to lead a new European Rating Agency.

Sell French Banks

Specially Credit Agricole and Natixis.


For Tyler Team and ZH readers, (source Jbaer)



I commented on what is working and the precautions they are taking the London management team is useful if you get some idea and that you may have full transparency in the light of the Greek situation, the preferred creditor status removal for future bonuses peripherals, the importance that the "negative pledge" in bond issues and questions Hellenes published by the international press today about the CDS Greece.


<<The Hellenic Republic FRN 2012 Prospectus.pdf>>


Why emissions as The Hellenic Republic € 150,000,000 Floating Rate Notes due 2012 have performed well recently, while the rest of the debt is sinking? English local regulation vs regulation.

From United States has the vision of the situation in peripheral countries is even more dramatic than ours. At peak times is emerging an attractive source of additional profitability to arbitrate fruit bonds issued peripheral European countries in U.S. currency prior coverage. This strategy perfectly applicable to the bonds Greek, Italian, Spanish, Portuguese and Irish is nothing new. What is irrelevant is to invest in emissions currently applicable regulatory framework which is not questioned but the country's external one (in view of what happened in Ireland). If you read carefully the prospectus of some Greek emissions, for example, notes that the applicable regulation is not helena but English. No matter how difficult things get you to Greece, one of the things they can do from Athens is to change the UK regulatory framework. Like when Russia went bankrupt, which was unpaid debt in rubles under Russian control and was not that affect the American law. If Greece decides to blow himself up with this type of debt under British control, automatically all of its assets in the UK would be seized including the embassy, ??and therefore any government in trouble is the think twice to do that even in dramatic moments. It is an interesting caution to keep in mind if you take any position in the PIIGS.


The Origin of Greek Doubts about the CDS: Irish Trivia.

To understand why there are doubts about the effectiveness of the CDS of Greece agrees to look at what happened a few months ago in the very heart of the European Union. What happened in Ireland? What abnormalities can occur in a market where the government owns the capital of financial institutions and also has guaranteed deposits? Why "voluntarily" agreed to remove the European banks fel 75% on certain sections of Irish debt when all bonus Value Recovery usually broken around 35%?

When a government owns the bank's Equity at the same time has guaranteed deposits and has serious financial problems, even within the European Union, anything can happen. Perfectly laws can be interpreted in a peculiar way or suggest to the bondholders (total have bad press) to accept a 75% off the debt to avoid getting into legal proceedings that would leave those assets as illiquid and, although a very small probability, could lead them to run up the costs of the trial before a local court can not assume risk for funds with daily liquidity and quarterly. The paradox of this situation is that a European Union government forces you to accept an implicit bankruptcy, in light of the valuation of the bond, but as the country does not explicitly CDS bankrupt government does not react the same way. Depending on how you design the coverage, it may not work as it should on paper. This topic is working management team, especially seeing the frenciencia with what appears in the words of German and French governments, the term "Voluntary cooperation" of financial institutions in resolving the Greek problem "


The negative pledge makes a difference in bankruptcy.

And what's that for Negative Pledge? Why risk premium while the sinking was a type of debt issuance of about 400 million Greek who kept up? Reading in depth the prospectus mentioned we found another clause that says: "STATUS OF THE NOTES AND NEGATIVE PLEDGE (page 7 of the attached example)"

The issue contains a clause means that no other creditor may be treated preferentially to the bondholder of the same, and that includes the International Monetary Fund and the European Cental Bank. Needless to comment on any post-bankruptcy and restructuring process is a particularly interesting right, but it is essential to ensure that such issuance is not treated arbitrarily with any damage as has happened in Ireland. The legal department of some managers have written to the incoming Minister Helen to confirm that you are aware of what is Negative Pledge. Athens has not only responded to this letter, but it has a positive way.


As they are working managers of Absolute Return: Solutions for "voluntary contributions" and "doubts about the CDS Greeks."

1, preference for emissions under control and American English vs emissions under control of peripheral countries.

Buy 2 º in government bond issues (preferably under control of another country and "negative pledge" in their prospectus) and buy the CDs of the European bank with high exposure to that country's debt on its balance sheet.

Buy 3 º protection of a bank subordinated debt and sell it in the senior tranche. Anomalies are occurring in the credit market to buy and sell different grades of protection of debt at very similar. Clearly if an entity begins to get in trouble, subordinated debt sinking immediately. The behavior of this will be much worse than the senior debt.

4 º Buy banks selling protection on governments peripheral protection in case the crisis gets out (although it is an event not likely). If finally there is an event of default Hellene, ISDA 5bn figure that there are net exposure on a gross amount of about 79bn. It is not an excessive amount but if they are managers working on who has what to be prevented and what is the exposure of some U.S. banks in this regard.


Chart: Net exposure on the notional amount of CDS in Sovereign Bonds


hambone's picture

Tyler - why don't you just take that Financial mastermind, D. Cheney's advice..."if you (taxpayers) are going to be raped (to pass along a wealth effect to the 1%), might as well do your best to enjoy it" (or thereabouts). 

All this squirming, fact checking, and logic just makes it hurt that much more!  Just take your MSM Ruffy and relax.

Lone Mad Minute Medic's picture

You mean I should relax lay still and enjoy it? How bout I opt out?

There is No Spoon's picture

is this merely a delayed reaction, and the ISM will now tumble following this abnormal jump in inventories, in which case next month's ISM will be in the 45 range, as predicted by the New Orders less Inventories leading indicator

Conversely, New Orders less Inventories for the Chicago PMI suggests a pickup in activity in the Chicago region.

Tall Tree Man's picture

Important to note: California Sales Taxes drop from 8.25% to 7.25% as of today.  This probably had an impact on large purchases in California.



Cognitive Dissonance's picture


How can something that is happening today (California Sales Taxes drop from 8.25% to 7.25% as of today) "had" an impact on large purchases in California if by "had" you mean in the past? 

If anything people might actually have held off on purchases waiting for this drop. Are you saying this increased the inventory? Please explain. Thanks.

Hephasteus's picture

It's really quite simple. You remember the 70's and 60's when sales tax was 5 percent and a good margin was 15 to 20 percent for store fronts. Fast forward to today and you have 6 and 5 percent margin wal-mart and 9 and 10 percent sales tax states and huge income taxes.

Well we've been through a inflationary margin compression and it's being passed on to consumers but slowly. This is why tax revenues are shit. Because to put it quite simply places like wal-mart costco etc are NOT paying taxes. They are collecting them but not paying cities and states.

slewie the pi-rat's picture

when the inventory figures start causing extrapyramidal effects, fire up the bong. 

JoeStocks's picture

All that inventory certainly is not riding the rails. Total rail traffic drifting lower year over year since the first of the year. Last week up just 1.3% over last year.

hambone's picture

Be nice if they added a little Grateful Dead "Casey Jones" or the like to listen to while perusing their charts.  I might linger longer.  Just saying...

schizo321437's picture

To me that says Goad on.

taca's picture

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Grand Supercycle's picture

Since DOW/SP500 is now EXTREMELY overbought, the reaction next week should result in a significant retracement.

S&P500 daily charts show updated rising wedge and possible head and shoulders pattern with target of 1,150 when confirmed.

dcb's picture

not sure I buy that. the big boys have lots of money from shorts and treasuries they can pump back intot he market after this 7 week drop and ? months of bond earnings.


based upon past history a droppping euro drops the market, but the market can move up rather well in a range bound euro. with central bank intervention this could provide a base for the market.