The good old days are back, those of the last housing bubble when money grew on trees.
The Conference Board's measure of just how awesome everyone feels just hit its highest level since February 2008 driven by an impressive surge in 'Expectations'. This should surprise nobody: as we previewed earlier today, "just to make sure that the market closes well green today, the only actual "data" will be yet another reading of consumer "confidence" this time from the Conference Board. Expect this to surge on news that it is Tuesday and stocks have nowhere to go but up, which in turn will send stocks, where else but, up." In short: reflexivity in all its glory. And to think it was just 10 days ago that the market reacted in absolutely the same way to a UMichigan confidence print that beat expectations by the most ever and to the highest since 2007. Perhaps if the US had one consumer confidence metric for every day of the week, all days would be like Tuesdays.
First, the important news: in a few hours the Fed will inject between $1.25-$1.75 billion into the stock market. More importantly, it is a Tuesday, which means that in order to not disturb a very technical pattern that will have held for 20 out of 20 Tuesdays in a row, the Dow Jones will close higher. Judging by the futures, this has been telegraphed far and wide: it is a Ben Bernanke risk-managed market, and everyone is a momentum monkey in it. In less relevant news, the underlying catalyst for the overnight rip higher in risk was the surge in the USDJPY, which left the gate at precisely Japan open time, and after languishing at the round number 101 support for several days, did not look back facilitated by what rumors said was a direct BOJ intervention via a Price Keeping Operation in which banks bought ETFs directly. This was catalyzed by the usual barrage of BOJ and FinMin individuals engaging in post-crash damage control and chattering from the usual script.
The weakness in economic data (not to be confused with the centrally-planned anachronism known as the "markets") started overnight when despite a surge in Japanese consumer spending (up 5.2% on expectations of 1.6%, the most in nine years) by those with access to the stock market and mostly of the "richer" variety, did not quite jive with a miss in retail sales, which actually missed estimates of dropping "only" -0.8%, instead declining -1.4%. As the FT reported what we said five months ago, "Four-fifths of Japanese households have never held any securities, and 88 per cent have never invested in a mutual fund, according to a survey last year by the Japan Securities Dealers Association." In other words any transient strength will be on the back of the Japanese "1%" - those where the "wealth effect" has had an impact and whose stock gains have offset the impact of non-core inflation. In other words, once the Yen's impact on the Nikkei225 tapers off (which means the USDJPY stops soaring), that will be it for even the transitory effects of Abenomics. Confirming this was Japanese Industrial production which also missed, rising by only 0.2%, on expectations of a 0.4% increase. But the biggest news of the night was European inflation data: the April Eurozone CPI reading at 1.2% on expectations of a 1.6% number, and down from 1.7%, which has now pretty much convinced all the analysts that a 25 bps cut in the ECB refi rate, if not deposit, is now merely a formality and will be announced following a unanimous decision.
Confused about the latest disconnect between reality and propaganda, this time affecting the (foreclosure-stuffed) housing "recovery" which has become the only upside that the bulls can point to when demonstrating the effectiveness of QE now that the latest attempt at economic recovery has failed miserably both in the US and globally? Gluskin Sheff's David Rosenberg is here to clear any confusion.
Houston we may have a problem: with the DJIA trumpetedely hitting new all time highs day after day in March, one would expect that its traditional second derivative - US Consumer Confidence, would be at all time highs as well, or close thereby. One would be wrong, because according to the Conference Board, March consumer confidence plunged to 59.7 from 69.6, and well below expectations of a 67.5 print. Both components of the index dipped, with both the present situation and expectations indices sliding from 61.4 and 72.4, to 57.9 and 60.9, respectively. And just to make sure the S&P ramps to all time highs on ongoing miserable economic, corporate profit and, of course, sovereign insolvency news, we got both New Home Sales, dropping from 431K to 411K, missing expectations of 420K, and the Richmond Fed also missing expectations of a 6 print, dropping from last month's 6 to 3. All in all, if this latest round of ugly and rapidly getting worse economic data doesn't send the S&P to new all time highs, nothing will. Well, perhaps another European country going broke may do the trick...
While the news flow is dominated by Cyprus, it will be important to not lose sight of the developments in Italy, where we will watch the steps taken towards forming a government. The key release this week is likely to be US consumer confidence. Keep a watchful eye on the health of the consumer in the US after the tax rises in January. So far, household optimism and demand has held up better than expected. The IP data from Taiwan, Singapore, Korea, Thailand, Japan will provide a useful gauge on activity in the region and what it reflects about global activity, however Chinese New Year effects will need to be accounted for in the process.
- JPMorgan Report Piles Pressure on Dimon in Too-Big Debate (BBG)
- Employers Blast Fees From New Health Law (WSJ)
- Obama unveils US energy blueprint (FT)
- Obama to Push Advanced-Vehicle Research (WSJ) - here come Solar-powered cars?
- BRICs Abandoned by Locals as Fund Outflows Reach 1996 High (BBG)
- Obama won't trip over Netanyahu's Iran "red line" (Reuters)
- Samsung puts firepower behind Galaxy (FT)
- Boeing sees 787 airborne in weeks with fortified battery (Reuters)
- Greece Counts on Gas, Gambling to Revive Asset Sales Tied to Aid (BBG)
- Goldman’s O’Neill Says S&P 500 Beyond 1,600 Needs Growth (BBG)
- China’s new president in corruption battle (FT)
- Post-Chavez Venezuela as Chilly for Companies From P&G to Coke (BBG)
Is the U.S. economy about to experience a major downturn? Unfortunately, there are a whole bunch of signs that economic activity in the United States is really slowing down right now. In many ways, what we are going through right now feels very similar to 2008 before the crash happened. Back then the warning signs of economic trouble were very obvious, but our politicians and the mainstream media insisted that everything was just fine, and the stock market was very much detached from reality. When the stock market did finally catch up with reality, it happened very, very rapidly. Sadly, most people do not appear to have learned any lessons from the crisis of 2008. Americans continue to rack up staggering amounts of debt, and Wall Street is more reckless than ever. As a society, we seem to have concluded that 2008 was just a temporary malfunction rather than an indication that our entire system was fundamentally flawed. In the end, we will pay a great price for our overconfidence and our recklessness.
While it is commendable that Bernanke has generated a wealth effect of some 12% for those few who are planning for retirement, another problem is where the funding for this increase has come from. As Bloomberg explains, while two thirds of the increase came courtesy of the stock market, or some 8% in absolute terms, the rest was from funded (and matched) contributions to accounts. This is equal to $2733 in actual money set aside for retirement in 2012, a far cry from the maximum allowed $17,500 per year, with the actual cash outflow excluding the corporate match substantially less. This amount to a measly $228 per month (less net of matching) that the average American who has a 401(k), has set aside for retirement. We understand now why Bernanke is so hell bent on hitting that Dow 32,000 bogey - without it, the average retired American will wake up very soon one day and realize that the money is gone. All gone.
This objective report concisely summarizes important macro events over the past week. It is not geared to push an agenda. Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases.
While the baffle with BS theme was strong earlier, when the UMich consumer confidence soared, rejecting the plunge in the consumer confidence tracked by the Conference Board, contrary to our expectations, the manufacturing ISM did not do a "China", which last night was reported to have grown and ungrown at the same time, did not drop to disprove yesterday's Chicago PMI and instead soared to 53.1 from 50.2, well above the expectations of a 50.7 print, and above the highest Wall Street estimate. This was the biggest beat of expectations in 16 months, and was driven by virtually every series rising except for Exports and Deliveries, but mostly by a surge in Inventories, which soared from 43 to 51.
With today's jobs number due out shortly, it is worth pointing out some of the key trends that we have observed in the underlying data stripped of month-to-month seasonal variance, which expose the "quality" side of the US non-recovery, instead of the far more manageable "quantity" side. First and foremost, as we showed over two years ago, and as the mainstream is gradually picking up, the US labor force is increasingly transitioning to one of part-time, and temp workers, which has key implications for wages, worker leverage, and overall job prospects, all of which logically are negative. But perhaps an even more disturbing trends is the conversion of America into a gerontocratic worker society, where the bulk of jobs are handed out to those 55 and over, which puts all young workers, not to mention college graduates, at a major disadvantage relative to far more experienced older workers, who are willing to work for less as they scramble to compensate for retirement shortfalls, and which prevents the natural rotation of the US labor force from older to younger.
The honey badger ramp continues, once more driven entirely by the USD carry as both the EURUSD and USDJPY hit new highs (14 month and 3 year, respectively). The EUR took another major leg higher following today's second ECB refinancing operation in two days, a 3 month LTRO, in which just €3.71 billion was allotted to some 46 bidders, far less than the €10 billion expected particularly in the context of the €6 billion the matured, leading to further Euribor curve steepening, more non-expansion of the ECB balance sheet, and a surge in the EURUSD to new post-2011 highs of 1.3560. But if it wasn't this it would be something else. Elsewhere we got the final official Spanish GDP number, which as previously reported once again came worse than expected at -0.7%, compared to expectations of -0.6%, and -1.8% Y/Y vs Exp. -1.7%. But once again we are told to ignore current reality and look with optimism to the future as various European confidence indices posted higher than expected prints. This seems logical: when the ugly fundamentals don't matter, one must at least pretend there is hope they will improve in the future to serve as a buying catalyst. Finally, and what the surging EUR and crushed exports are all about, Italy sold some €6.5 billion in 5 and 10 year BTPs at yields of 2.94% and 4.17%, both respectively lower than the prior auctions of 3.26% and 4.48%.