"Cheap oil has become “too much of a good thing” for growth", according to Goldman which in an "analysis" concludes "that the net effect of cheap oil on growth has probably been negative so far, with the capex collapse outweighing the consumption boost. Which is a confirmation of everything we have said since late 2014.
Not too dovish (upgrade uncertainty), not too hawkish (lowered rate hikes), a goldilocks statement, with just a little less inflation and just a little less GDP growth, and just two more quarter of near-ZIRP rates is what it takes for the world to get it all together.
If it sounds like history repeating itself, it most surely is. The coming recession will again obliterate the sell side hockey sticks, which this time started last spring at $135 per share for 2016 and are already being reduced at a lickety-split rate not seen since the fall of 2008. But this time there is one thing that decisively different, and it will make all the difference in the world. As will be reinforced once again by the post-meeting contretemps on Wednesday, the Fed has painted itself into a deathly corner and is utterly out of dry powder. It has nothing left but to hint at the prospect of negative interest rates. And that will be usher in its thundering demise.
Former Federal Reserve Chairman Alan Greenspan resurfaced this week. We couldn’t recall the last time we’d heard from him. But, alas, the old fellow’s in desolate despair. Any remorse he now has is too little too late. Like a pickled cucumber, his actions, and the actions of his predecessors, can never be undone. Today we’re all living with the exacting consequences of Alan Greenspan’s pickled economy.
"While buybacks work great during bull market advances, as individuals willfully overlook the fundamentals in hopes of further price gains, the eventual collision of reality with fantasy has been a nasty event..."
Let me be blunt: this next crash will be far worse and more dramatic than any that has come before. Literally, the world has never seen anything like the situation we collectively find ourselves in today. The so-called Great Depression happened for purely monetary reasons. Before, during and after the Great Depression, abundant resources, spare capacity and willing workers existed in sufficient quantities to get things moving along smartly again once the financial system had been reset. This time there’s something different in the story line...
“Are we closer to an economic recession or a continued expansion?” With the Fed hiking interest rates, and talking a tough game of continued economic strength, the risk of a “policy error” has risen markedly in recent months. The markets, falling inflation indicators, and plunging interest rates are all suggesting the same.
Is the economy “nowhere near recession?” Maybe. Maybe not. But the charts above look extremely similar to where we were at this point in late 2007 and early 2008. Could this time be “different?” Sure. But historically speaking, it never has been.
There’s really one supreme element of this story that you must keep in view at all times: a society (i.e. an economy + a polity = a political economy) based on debt that will never be paid back is certain to crack up. Its institutions will stop functioning. Its business activities will seize up. Its leaders will be demoralized. Its denizens will act up and act out. Its wealth will evaporate. Given where we are in human history - the moment of techno-industrial over-reach - this crackup will not be easy to recover from. Things have gone too far in too many ways. The coming crackup will re-set the terms of civilized life to levels largely pre-techno-industrial. How far backward remains to be seen.
It didn't take long for the momentum-chasing fundamental strategists to readjust their immediate stock price targets on the heels of the i) failure of the Santa Rally and ii) the worst start to the year in Chinese stock market history. Case in point, moments ago JPM's equity strategy team released its first note for the year in which it says that "we take the view that equities are unlikely to perform well on a 12-24 month horizon" adding that "the regime of buying the dips might be over and selling any rallies might be the new one."
With the market now back to oversold conditions and redemptions complete, it is now or never for the traditional “Santa Rally.” Statistically speaking, the odds are high that the market will muster a rally over the next couple of weeks. While the short-term trends are indeed still bullishly-biased, the longer-term analysis (monthly) reveals a more dangerous picture emerging.
"In a worst case scenario, the real economy effects of the oil sector and the earnings slowdown hit the frothy commercial real estate and REIT sector, which in turn begin the widening of the contagion begun by energy high yield. Combine this with the sudden stop to lower quality energy credits I believe is inevitable and you likely have stall speed – or even recession. And that’s where subprime auto ABS, student loan securitization and US munis come into the picture for the US domestic economy. Those markets get hit in recession."
Did algos finally figure out precisely what we said first thing this morning, namely that the market completely ignored what was a hawkish hike, and that as a result, what Yellen has done, now that the kneejerk reaction is over, is policy error, pure and simple?