There are a dozen significant economic indicators that are warning that the U.S. economy is heading into a recession. The Dow may have soared past the 15,000 mark, but the economic fundamentals are telling an entirely different story. If historical patterns hold up, the economy is heading for a very rocky stretch. But most average Americans are not that concerned with the performance of the stock market. They just want to be able to go to work, pay the bills and provide for their families. During the last recession, millions of Americans lost their jobs and millions of Americans lost their homes. If we have another major recession, that will happen again. Sadly, it appears that another major recession is quickly approaching. The following are 12 recession indicators that are flashing red...
Gluskin Sheff's David Rosenberg exclaims we are currently are witnessing the Potemkin rally (the phrase Potemkin villages was originally used to describe a fake village, built only to impress). The term, however, is now used, typically in politics and economics, to describe any construction (literal or figurative) built solely to deceive others into thinking that some situation is better than it really is. Ben Bernanke, recently proclaimed “The Hero” by Atlantic Magazine, is the “Wizard of Potemkin.” Since 2009 Bernanke has engage in massive monetary experiments. These experiments lead to future dislocations. There is no doubt that the Fed wants inflation. The problem is they may get more than they ask for. We are currently witnessing the slowest economic recovery of any post-WWII period. However, It is important to challenge your thought process. Read material that challenges your views. Here are David's rules...
The President will take questions from the White House reporters at 1015ET. Will he mention the equity market at all-time highs? The strength of the housing market? The 'rising' unemployment rate? The 'falling' macro economy?
Total collapse. That is the only way to explain what just happened with the Chicago PMI which imploded from 52.4, and printed at a contractionary 49: the first sub-50 headline print since September 2009. But that's not all: Deliveries, Prices Paid and Production all hit their lowest since 2009; Backlogs posted their tenth month of contraction in the past 12 months. And what's worst for the Department of Making Shit Up, Employment plunged from 551. to 48.7, its third month over month decline. Actually another way to phrase it: complete disaster. Obviously this number explains why S&P should have no problems crossing 1,600 today. Because for that other Department: of Propaganda and Creating money out of thin air, this means only one thing: the Fed is preparing to print ONE KROOGOL MORE!
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.
The week ahead will be driven by the heavy end-of-month data schedule. In addition to the usual key releases like ISM and payrolls and ECB meeting, this week we also get an FOMC meeting - though it will hardly see much more than a nod to the weaker activity data of late. For the ECB meeting a full refi but not a deposit rate cut are priced now. Outside the FOMC and the ECB meeting there will be focus on the RBI meeting in India, with a 25bp cut priced in response to lower inflation numbers recently.
The final print for UMich Consumer Confidence beat expectations but that is about the best anyone can hope to glean from it. A slight improvement from the preliminary April data, the current and outlook economic indices both dropped for the first time this year and it has now been four months of no change year-over-year in this important sentiment indicator as today's measure of 'happiness' is exactly the same as that of April 2012. Perhaps US consumer are the most confident because their personal savings are now the lowest they have been in the past five years.
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.
The commodity market is saying global growth is slowing. But, there is hope, as BofAML's David Woo notes, the US equity market is saying US consumers are still going strong; and the FX and European sovereign markets seem to believe Mrs. Watanabe is about to embark on a global shopping spree. However, like us, Woo thinks it is unlikely that these markets will all turn out to be right. At the same time, we agree completely with Woo's assessment that markets may be under pricing three macro risks: the ability of Beijing to ease policy aggressively in the face of strong home price appreciation may be limited; the positive wealth effect of US housing recovery may not be enough to offset the contractionary impact of fiscal tightening; Japanese money may stay at home longer than expected. As he concludes, "something will have to give and a major re-alignment of the markets, the odds of which are rising, will probably not be either smooth or benign."
With no macro data on the docket (the NAR's self promotional "existing home sales" advertising brochure is anything but data), the market will be chasing the usual carry currency pair suspects for hints how to trade. Alas, with even more ominous economics news out of Europe, and an apparently inability of Mrs Watanabe to breach 100 on the USDJPY (hitting 99.98 for the second time in two weeks before rolling over once more), we may be rangebound, or downward boung if CAT shocks everyone with just how bad the Chinese (and global) heavy construction (and thus growth) reality truly is. One asset, however, that has outperformed and is up by well over 2% is gold, trading at $1435 at last check, over $100 from the lows posted a week ago, and rising rapidly on no particular news as the sell off appears to be over and now the snapback comes and the realization that Goldman was happily buying everything its clients were selling all along.
Two weeks ago we showed the notable cyclical collapse in Goldman Sachs' business cycle 'Swirlogram', due to a combination of downward revisions in over-adjusted data and actual economic decline. The latest 'swirlogram' shows that the situation has gone from bad to worse. While hope remains due to strength in AUD and CAD (commodity) currencies, Consumer confidence, global PMIs, and Industrial metals have all worsened significantly pushing the Global Leading Indicator momentum down notably. The next key indicators Goldman are watching are Belgian and Dutch manufacturing, Japanese Industrial Production Inventory/Sales, and Korean exports and they remain cautious of the increasing fiscal drag in the US.
The last decade has seen significant changes in media and communication. In a world where there is an ever louder cacophony of news sources competing for our attention, any one particular story has to be communicated at a particularly high volume if it is to attract notice. UBS' Paul Donovan warns that this perhaps gives a tendency to sensationalism. For financial markets, Donovan notes, there is a risk that these changes in the world of media will impinge on the calm and reflective world of economics. Economists rely on sentiment data as a leading indicator for future economic trends. If individuals are overreacting to events relative to the past, however, sentiment may not be as useful as a barometer of future economic activity. In the US a certain economic hysteria seems to be developing, amongst consumers in particular (especially compared to Europe) and Donovan suggests investors would be wise to treat US sentiment data (particularly consumer sentiment data) with some caution as American investors appear to react more strongly to the underlying economic events.
Last week we laid out the apparent 'blueprint' from the EU Commission for every other country with a banking system in which non-performing loans are soaring. With Mario Draghi's patsy in place at the Cypriot Central Bank, happy to hand over the nation's gold at the beck-and-call of the EU leaders - despite the Cypriot President's disgust at the 'coercion' of the new deal chiding the central bank for "catching the government by surprise," it now seems, as this Cyprus Mail op-ed explains, that the people of this nation are ready for change - real change, , otherwise, "we may wake up one morning and find the country has completely shut down, crushed under the weight of its mounting, unserviceable debts with no banks, businesses or services able to operate."
The stock market is not crashing yet, but there are lots of other market crashes happening in the financial world right now. Just like we saw back in 2008, it is taking stocks a little bit of extra time to catch up with economic reality. But almost everywhere else you look, there are signs that a financial avalanche has begun.
Well if this doesn't send the market into all-time record high territory, nothing ever will: seconds ago the UMich Consumer Confidence plummeted from 78.6 to 72.3, on expectations of an unchanged 78.6 print. This was not only a 9 month low in the index, but more importantly the biggest miss to expectations in recorded history! Both conditions (84.8, Exp 89.5, Last 90.7) and expectations (64.2, Exp.70.0, Last 70.8), imploded, with the current conditions number the worst print since July and posting the biggest drop since August 2011. Surely if retail sales was not a sufficient Conviction Buy signal for the Fed, then Consumer Confidence should send Kevin Henry, who is now mainlining a trail mix cocktail of Redbull, Caffeine and Meth, into F5 overdrive. And if that doesn't do it, the final economic miss of the day, Business Inventories which also missed expectations of a 0.4% print, and dropped from 0.9% to 0.1%, the lowest since September 2011 and biggest miss since September 2012, should certainly cement today's 1600+ S&P close.