Lehman

What would happen, for example, if a large number of holders decided to sell a high yield bond ETF all at once? In theory, the ETF can always be sold. Buyers may be scarce, but there should be some price at which one will materialize.  But we can’t get away from depending on the liquidity of the underlying high yield bonds. The ETF can’t be more liquid than the underlying, and we know the underlying can become highly illiquid.... no investment vehicle should promise more liquidity than is afforded by its underlying assets. Do these recent promises represent real improvements, or merely the seeds for subsequent disappointment?

How can it be? Services PMI was at 6-month highs. The Kansas City Fed Index tumbled to -4 in March (against expectations of +1) and was last below this level in Feb 2013. KC Fed has now missed for 6 of the last 8 months and the report is a disaster across the board. New orders plunged to -20 (2nd lowest print since Lehman), order backlogs imploded, average workweek collapsed to -17 (lowest since Lehman), and future capex expectations fell to a five-year low. As one respondent noted, "we do not see the economy as being as strong as a portrayed in the national media reports."

Ignoring the considerable risks in the mid 2000s led to the global financial crisis. Irish politicians, bankers and financial experts, like their international counterparts, are slow learners ... 

For the 3rd of the last 4 months, Durable Goods Orders fell and missed expectations (the worst run since Lehman). A 1.4% drop (against expectations of a 0.2% rise) is made worse by downward revisions of the last month's modest bounce. Across the board the numbers are a disaster - Ex-Trans fell 0.4%, Ex-defense fell 1%, Capital Goods Shipments fell 1.4% with capital goods ex-air dropping a stunning 7.6% YoY. Paging negative Q1 GDP print expectations...

"I'm not sure [European QE] is going to do anything - certainly, nothing that's good. The fundamental problem here, as I see it anyway, is that the European banking system is still broken... I think, increasingly, bankers are discomforted more than anything else (it's not just the ex central bankers but increasingly the people that are still holding the levers)... they are starting to ask whether they have somehow been backed into a place where they don't really want to be.... Unfortunately, [it] is getting bigger and bigger. There is a possibility at least that this whole exercise could end very badly."

Where things get really scary is not only when looking at global trade volume, which is sliding, but the actual value of trade calculated in USD. It is here that the real devastation for a world whose global reserve currency is still the USD, does the recent collapse in global trade, as a result of the soaring value of the US dollar (for all the wrong reasons) become truly apparent.

Despite Markit's PMI exuberance, it appears the awesomeness did not reach Richmond. Printing at a disastrous -8, against expectations of +3, Richmond Fed is the lowest since January 2013. The last 5 months have seen the index drop at its fastest rate since Lehman.

Following the first YoY deflation since 2009 in January, February's CPI YoY data managed to scrape its way back to unchanged (very modestly better than the 0.1% drop expected). Consumer prices rose 0.2% MoM - the most since May 2014 with gas prices up MoM for the first time since June. So what is the narrative now: if tumbling gas prices didn't get consumers to spend, rising gas costs will? Ex food and energy, prices rose 0.2% MoM (slightly hotter than the 0.1% rise expected) led by the shelter index (which increased 0.2 percent) accounting for about two-thirds of the monthly increase. The rent continues to be too damn high for most, and finally the BLS is starting to realize this.

Chinese rail freight collapses 9.1% YoY; China Manufacturing PMI tumbled back to a contractionary 49.2 - lowest in 11 months; and the Employment sub-index plunged to its lowest since Lehman ... yeah but apart from that, everything is awesome. And for those excited about just how disastrous Chinese data is (and thus how huge the next stimulus unleashing will be), think again - China now sees exactly where the last trillion dollar QE went... a de minimus and unsustained blip in the economy and liquidity-fueled rampage in stocks (which is not what a corruption-crackdown politburo wants to encourage).

*FISCHER SAYS RATE LIFTOFF LIKELY WARRANTED BEFORE END-2015

With the world now convinmced that Janet Yellen is as dovish as she has ever been on rate hikes, today comes the first post-FOMC speech. None other than Vice-chair Stanley Fischer is due to address The Economic Club of New York on the topic of "Monetary-policy lessons and the way ahead." As Art Cashin warned this morning, Fischer "seems to feel that the Fed must raise rates this year. He is also the only Fed official to concede that any rate hike will be different than any seen before."

"Proactive central banks figure this out early and fight the inevitable slowdown by implementing QE and weaker currencies. They grab the other guy’s pizza slice. Their asset markets soar.  As Figure 5 shows, 70% of the world’s developed markets have inflation below 0.5% – almost as high as the depths of the 2008 financial crisis. So the USD8.6tn in central bank balance sheet expansion (from the Fed, ECB, BOE, BoJ, and PBoC, which amounts to 130% growth over Dec-07 to now) has been unable to get inflation going." - Bank of America

The correlation between wage growth and consumer spending is now 0.93 according to RBC meaning that the 80% of the labor force who aren't seeing their pay increase will not be driving the US economic engine going forward.

The latest red light: Global equity 12-month forward EPS has turned to the tune of 7% negative on a YoY basis.In fact, as the chart below shows, global forward EPS is now plunging at the fastest rate since Lehman, and is down to levels last seen in 2011.

With markets pricing in nothing but a "permanent plateau of margins," it appears the Philly Fed is about to ruin that meme too... Thanks to the collapse of the Prices Received (and Prices Paid) indices, margins are now implicitly the lowest since Lehman. The last 2 times "margins" were this low, the US entered recession.

• Fed May Not Hit Neutral Until 10th Anniversary of Lehman Collapse (BBG)... make that never
• Global stocks and bonds roar Fed approval, dollar fights back (Reuters)
• EU to tell Greece time, patience running out (Reuters)
• U.S. likely to delay planned closure of two Afghanistan bases (Reuters)
• Norway Signals Reduction After Unexpectedly Holding Rate (BBG)
• Oil Falls to $55 as Kuwait Comments Refocus on Oversupply (Reuters)
• Tsipras Heads to Summit as Merkel Tries to Defuse Greek Crisis (BBG)
• Yahoo Pulls the Plug on China Operations (WSJ)