Consumer Credit Soars As Uncle Sam Resumes Handing Out Billions In Student Loans With Reckless AbandonSubmitted by Tyler Durden on 10/05/2012 15:46 -0400
Following a major miss in July consumer credit which declined by $3.3 billion (since revised to a -$2.5 billion decline), it was only natural that August would be the opposite, and see a rebound over consensus. Sure enough, the August total consumer credit number came in at $2.73 trillion, an increase of $18.1 billion from last month, on expectations of an increase by $7.25 billion. Why did the number rise? Same reason as always: a government-funded pump into non-revolving (i.e., Student and Government motor loan) credit which soared by $14 billion while revolving credit posted a modest $4.2 billion increase unable to even offset the July decline. But in headline scanning algo news, this was the highest jump in post-revision (recall last month the Fed completely redid its consumer credit series data which is now useless for any analysis going back before December 2010). Yet oddly even with this massive pump the stock market has refused to rebound and instead is acting in a very odd fashion and the now traditional green color of stock moves has taken on an odd reddish hue that is unfamiliar to the current generation of traders.
Factory output has shrunk for 14 consecutive months and businesses must continue to trim the fat of their organizations during these recessionary times. The report showed that 18.2 million people were jobless in September; this is an increase of 34,000 people versus the previous month. As living standards fall and livelihoods are being wretched voter anger is becoming increasingly palpable, especially in countries such as Spain and France. History provides countless lessons as to the political consequences of detached economic policies and their real effects. Northern Europe’s gamesmanship in rewriting previously agreed banking debt support may set a dangerous precedent and tear apart the tenuous ties of trust between governments - who after all must act together if they are ever to forge a solution to their current economic plight.
Never try to teach a pig to sing, advised Robert Heinlein. It wastes your time and it annoys the pig. Similarly, never try to convince a central banker that his policies are destructive. After five years of enduring crisis, market prices are no longer determined by the considered assessment of independent investors acting rationally (if indeed they ever were), but simply by expectations of further monetary stimulus. So far, those expectations have not been disappointed. The Fed, the ECB and lately even the BoJ have gone “all- in” in their fight to ensure that after a grotesque explosion in credit, insolvent governments and private sector banks will be defended to the very last taxpayer. Conventional wisdom is that such moves are justified during this period of economic slowdown, as everyone agrees that the market is ’deleveraging’. But as the consistently excellent Doug Noland points out, this idea of deleveraging (i.e. reduction of available credit) in the US is a myth.
US large cap corp profitability has been enhanced instead of eroded by outsourcing simply due to final demand being reflated by credit growth. That the US consumer’s deleveraging has not yet actually been felt in terms of final demand being squeezed and that the Federal government is going to go from supporting demand to detracting with some degree of fiscal cliff effect going into next year. In a highly leveraged economy where SMEs are not performing well as evidenced by numerous anecdotal pieces of information and the overall weak post-08 recovery, the US could easily slide into a structural type deflationary recession. This is likely to have negative ramifications in EM/ EM FX where many of these companies have also enjoyed strong performance and negative implications for commodities and commodity exporters.
Since 2007 our analysis has suggested the likelihood of economic outcomes that most have considered unlikely: significant and ongoing monetary inflation, policy-administered currency devaluation, substantial global price inflation, and an eventual change in how the forty year old global monetary system is structured. Most observers have viewed such outlooks as tail events – highly unlikely, unworthy of serious consideration or a long way off. We remain resolute, and believe last week’s movements in Frankfurt and Washington towards perpetual quantitative easing confirmed and accelerated the validity of our outlook. With QBAMCO's view that $15,000 - $19,000 Gold is possible, timing of the catch-up phase is impossible - though they suspect last week's events may be the catalyst that begins to raise public awareness of the link between monetary inflation and price inflation.
Consumer Prices Soar By Most Since June 2009, Retail Sales Ex-Autos And Gas Expose Lethargic ConsumerSubmitted by Tyler Durden on 09/14/2012 08:47 -0400
Following yesterday's producer price shock, when PPI soared by the most since June 2009, today's CPI follows suit, with the largest jump in over 2 years, printing up 0.6%, in line with expectations, up from an unchanged print in July. In other words, the food inflation which is already spreading through the economy courtesy of the record drought, is about to be supported by some brand new Fed-generated inflation. Luckily, as yesterday, nobody uses gas or food. And in other news, retail sales posted yet another very disappointing print, when despite a better than expected headline print of 0.9% in August advance retail sales, a number which included gas and auto sales, retail sales excluding these very volatile components, rose by only 0.1%, on expectations of a 0.4% rise, and a downward revision from 0.9% to 0.8%. This was the 5th miss in 6 months, and ugly all around. In other words, the US consumer, revised consumer credit data notwithstanding, is levering up and not generating any real new sales. Expect yet another round of GDP revisions. However, in light of yesterday's Bernanke announcement, it is pretty obvious that no macro economic data for public consumption does the disaster that is the economy in the Fed's eyes, justice, and makes us wonder just how ugly the underlying reality must be. All that said: with inflation spiking, and consumers lethargic, it certainly appears that Bernanke picked the perfect time for more monetary paper dilution.
On the surface, today's G.19 update, aka the monthly Consumer Credit Data, was a big disappointment due to a major miss in consumer credit, which in July dropped by $3.3 billion from $2.708 trillion to $2.705 trillion. The drop was, as always, on a slide in revolving credit, which dropped for a second consecutive month, this time by just under $5 billion, while non-revolving credit, aka student loans and GM subprime debt, rose by just $1.5 billion: the lowest monthly increase in this series since August 2011, when it declined by $9 billion. Expectations were for an increase of over $9 billion. There was a far bigger problem, however. The problem is the spike on the chart below which represents the November to December 2010 transition (source: Fed). What happened there is that 3 months after the Fed revised the consumer credit data last, it decided to re-revise it again. Frankly, at this point nothing the Fed releases has any credibility, as the central planners are literally making up data every three months as it suits them.
Suddenly the delicate balancing of variables is once again an art and not a science, ahead of a week packed with binary outcomes in which the market is already priced in for absolute perfection. Per DB: We have another blockbuster week ahead of us so let's jump straight into previewing it. One of the main highlights is the German Constitutional Court's ruling on the ESM and fiscal compact on Wednesday. On the same day we will also see the Dutch go to the polls for the Lower House elections. Thursday then sees a big FOMC meeting where the probabilities of QE3 will have increased after the weak payrolls last Friday. The G20 Finance Ministers and Central Bank Governors will meet on Thursday in Mexico before the ECOFIN/Eurogroup meeting in Cyprus rounds out the week on Friday. These are also several other meetings/events taking place outside of these main ones. In Greece, PM Samaras is set to meet with representatives of the troika today, before flying to Frankfurt for a meeting with Draghi on Tuesday. The EC will also present proposals on a single banking supervision mechanism for the Euro area on Tuesday. If these weren't enough to look forward to, Apple is expected to release details of its new iPhone on Wednesday. In summary, it will be a good week to test the theory that algos buy stocks on any flashing red headlines, no longer even pretending to care about the content. Think of the cash savings on the algo "reading" software: in a fumes-driven market in which even the HFTs no longer can make money frontrunning and subpennyiong order flow, they need it.
Lock Up Your Sacred Cows Before We Find and Slaughter Them!
Have you heard the news? Auto sales are booming. Total sales for the month of August were 1,285,202 vehicles, according to Autodata Corp, the highest monthly sales figure for any August since 2007, when 1.47 million autos were sold in the United States. Year to date auto sales have totaled 9.7 million and are on track to reach 14.5 million. Between 2006 and 2007, auto sales ranged between 16 million and 18 million. They crashed below 10 million in 2009. The Keynesians running our government have pulled out all the stops to restart this engine of consumer spending. First they wasted $3 billion of taxpayer funds on the Cash for Clunkers debacle. Almost 700,000 perfectly good cars were destroyed in order to keep union workers happy. This Keynesian brain fart distorted the used car market for two years, raising prices for cars needed by the working poor. After that miserable failure, they realized the true secret to selling vehicles is to give them away to anyone that can scratch an X on a loan document, with 0% interest for 60 months, financed by Federal government controlled banking interests. Add in some massive channel stuffing and presto!!! – You’ve got an auto sales boom.... This is America, land of the delusional and home of the vain. The appearance of success is more important than actual success.
When Ben Bernanke launched QE 2 in 2010 he outlined a third mandate for the Federal Reserve - the boosting of consumer confidence. He stated that the goal of QE 2 was to boost asset prices in order to spur consumer confidence through the "wealth effect" which should translate into economic growth. In 2010 he was right, and QE 2 not only boosted asset prices sharply, but kept the economy from slipping into a recessionary spat. As Friday's speech from the economic summit in "Jackson Hole" draws near - Bernanke should be taking a clue from today's release of consumer confidence in considering his next move.
The vital question of the moment is whether of not The Bernank will signal an intention of moving towards QE3 in his much-anticipated 'Jackson Hole' conference in two weeks. Citi's Tom Fitzpatrick believes "it would be irresponsible to do so and that we need a more 'responsible fiscal policy' which will not materialize as long as we have an 'irresponsible monetary policy' bailing policymakers out". However, what we think in this regard is totally irrelevant to this discussion for it is what we think the Fed thinks that is critical. Recent data seems to have been a little more supportive of the economy (on the face of it) and may lead the Fed to stay on hold in the near term (September meeting). This will almost certainly raise the bar extremely high for further easing as we head into the Presidential race proper. If this window closes then a move before December will be extremely unlikely barring a major financial/market/economic shock, since after the 9/13 meeting, there are no more meetings until 12/12. However this increases the danger of the Fed getting 'caught behind the curve' which must be balanced with the 'mistake' of one-monetary-step-too-far with very real inflationary consequences.
Who gets burned when the newest credit bubble busts?
Jackson Hole To Be Empty: July Retail Sales Spike As Producer Prices Have Highest Increase In 6 MonthsSubmitted by Tyler Durden on 08/14/2012 08:41 -0400
Dash any hopes about a "surprise" Jackson Hole announcement by the Fed. The reason: July retail sales posted the biggest beat to expectations, rising at 0.8% on expectations of a 0.3% increase, which was above the highest Wall Street estimate of 0.6%, and which despite the downward revision of June headline retail sales from -0.5% to -0.7%, means that the Fed will now be looking at the possibility of inflation rising as a result of increased consumer spending. Ex autos and gas, the increase in spending was +0.9%, on expectations of a 0.5% rise (prior revised from -0.2% to -0.4%). Was this spike in spending credit driven or not? This will be seen once the next personal savings and consumer credit report is out, but that won't happen until after Jackson Hole. So those who trade based on hope and prayer may be well-advised to shelve those two strategies for the next 3 weeks, especially since PPI rise 0.3%, on expectations of a 0.2% pick up following June's 0.1% increase: the biggest increase in 6 months.
Yes, There's A NEW Bubble It's Near Guaranteed To Pop Bringing Consumer Discretionary and Durable Sector Stocks Along With It!