Lehman

Last month we observed that in the aftermath of the worst print in non-revolving (i.e., student and auto loans) debt since November 2013, that the subprime-credit driven, pardon the pun, feeding frenzy for cars is now over. And sure enough, following this month's disappointing auto sales which missed virtually for every single producer, we were again correct. This month, however, things are even worse, because while last month it was the collapse in the non-revolving debt that was the highlight, at least it was modestly offset by a surge in revolving credit as consumer loaded up the credit cards. No such luck this month.

For six years, the world has operated under a complete delusion that Central Banks somehow fixed the 2008 Crisis.

Four months ago, in another failed attempt to boost confidence in the Eurozone and stimulate lending (failed because three months later the ECB finally launched its own QE), the ECB conducted its latest stress test, which as we explicitly pointed out was an utter joke as even its "worst-case" scenario did not simulate a deflationary scenario. Two months later Europe was in outright deflation.  It was initially unclear just how comparably laughable the Fed's own stress test assumptions were, but refuting rumors that Deutsche and Santander would fail the Fed's stress test (perhaps because former FDIC head and current Santander head Sheila Bair wasn't too happy about her bank being one of the failed ones), moments ago the Fed released the results of the 2015 Fed stress test, and.... it seems there was no need to provide a sacrificial lamb as with stocks at record highs. In fact everything is awesome! FED STRESS TEST SHOWS ALL 31 BANKS EXCEED MINIMUM REQUIREMENTS

Since the start of February, 48 US macro data items have missed expectations and 8 have beaten. Since then the S&P 500 has risen over 5.5% (and the Nasdaq even more) and 10Y yields are up 50bps. Bloomberg's US Macro Surprise index is now as weak as it was just after Lehman and is falling at the fastest pace since Summer 2012. While everyone is well aware that markets can stay irrational longer than a trader can stay liquid, one has to wonder just how long this farce can continue before even the most effusive talking head has to admit... things ain't great.

Must be the weather... since August. US Manufacturers New Orders tumbled 0.2% in January (missing expectations of a 0.2% rise for the 6th of the last 7 months). This extends the losing streak for factory orders to 6 months, something we have not seen since the great recession in 2008... The drop was led by a plunge in Consumer Goods - not exactly what one would expect from all those gas savings? Just add it to the growing list of missed macro data expectations since the start of Feb!

What people and central bankers do not understand, is that you can't devalue your way to prosperity. Absolutely nothing has changed since the last crisis. The same too big too fail banks have only gotten much bigger. The same people that were in charge leading into the crisis and during it, are the same people who are in charge of fixing it. New regulations were established to try and regulate the industry, but they will be proven to be ineffective. Why? Because the Volcker Rule and Dodd-Frank have had all the important elements removed, thanks to the massive lobbying power of the TBTF banks and the Fed.

Is Janet Yellen "patient" or not? And is "patient" a nudge-nudge, wink-wink code for a period stretching beyond the next few FOMC meetings or is it just a tacit admission that the Fed will start checking its parachute harness only after the plane’s engines have at last caught fire?  The last time they did this - with the benefit of hindsight - the supposed golden era was the one in which were actively sowing the seeds of our own ruin, it might give pause for thought about quite how much harm our masters' stubbornly accommodative stance is causing us again today.

Recency bias no doubt once again playing a role, but more likely it is this new-ish trend to deny any damaging economic possibility as it might disrupt the balance of financialism. Any system that cannot even countenance just a small possibility of contrary thought is not robust or “resilient” at all. As we saw in 2008-09, oil liquidations were entirely appropriate for economic conditions; how can “everyone” deny outright something even slightly similar?

A running theme here has been the great rotation of bubble-blowing credit from subprime housing to subprime auto-loans. Amid government probes of underwriting standards and soaring delinquencies, it appears when the least-creditworthy Americans are cut off from debt servitude, bad things happen in car sales... FORD FEB. U.S. LIGHT-VEHICLE SALES FALL 2.0%, EST. UP 5.8% (miss!). Worst Still - US Domestic Vehicle Sales Worst Start To The Year Since 2010. Of course, the real blame - as we will be told - is the weather... It seems Obama's new American Dream of a brand new Ford or GM (or Maserati) in every driveway may be another broken promise.

Goldman's Global Leading Indicator (GLI) final print for February affirms the global economy has entered a contraction with accelerating negative growth. Just six months after "expansion", the Goldman Swirlogram has collapsed into "contraction" with monthly revisions notably ugly and 9 out of 10 components declining in February. Some have suggested, given US equity's strong February (buyback-driven) performance, that the US economy will decouple from the world... or even drive it.. but that is 100% incorrect. US Macro data has fallen at its fastest pace in 3 years and is at its weakest level since July 2011 as 42 of 48 data items have missed since the start of February.

yes: the S&P may well be "fairly priced" here, if one assumes an 18x (rounded up) forward P/E multiple to be fair - a number which is above the prior 5-year average forward 12-month P/E ratio of 13.6, and above the prior 10-year average forward 12-month P/E ratio of 14.1. And in order to achieve that, not much has to happen: instead of hiring millions, America's corporations just need to fire about 2-3 million people in order to extract the kinds of net margin efficiencies that are already priced in!

When everyone, truly everyone, decides to frontrun the ECB's monetization of European assets (first bonds, and soon everything else too), this is what the outcome looks like.

Not "contained." Just six short months ago, the 2Y bonds of Austria's bank bank - HETA Asset Resolution AG - were trading well above par as the world and his mom reached for yield (~6%) in all the wrong places. Today, following the "spectacular development" over the weekend that the bank will be wound down due to the discovery of an $8.5bn "hole" in its balance sheet, the 2Y HETA bonds are trading below 50c on the dollar (at a yield of 54%). This is indeed Austria's "Lehman" moment as for the first time in the new European 'bail-in' era, senior debt is getting a massive haircut.

If not the economy or fundamentals, and if not the Fed, which as we know is still on sabbatical after its massive QE1-2-Twist-3 $3 trillion liquidity injection, just what has pushed stocks up to jawdropping all time highs? Here, courtesy of Deutsche Bank, is the answer...