Recession

So what happens to a market that’s balanced precariously atop the shares of a handful of “must own” companies when those companies lose their halos? Historically, the previously-strong sectors join the rest in a broad sell-off.

Following Milwaukee Fed weakness, Dallas Fed Manufacturing printed -4.9 (better than expectations of -10 and up from October's -12.7). This is the 11th monthly contraction (sub-50) in the index, something not seen outside of a recession. Prices paid and received tumbled, wages dropped and new orders contracted once again but number of employees and average workweek both jumped? Despite all the promises from former Dallas Fed Fisher, it appears the economy is not so diversified after all.

One month ago, the Chicago PMI soared, printing at 56.2, far above the highest estimate. It was not meant to be, and printing moments ago at 48.7, a mirror image of last month, as this time it printed below the lowest estimate of 49, with consensus expected a 54.0 print. And confirming that that US is indeed in a manufacturing recession is the starting fact that the PMI has been below 50 (shrinking) for more months in 2015 (6) than it has been above this expansionary threshold.

Faced with a sharp deterioration in government finances, the Saudis have resorted to tapping the bond market and delaying contractor payments in an effort to avoid further depletion of the kingdom's SAMA reserves. Now, Saudi banks are bleeding private and public sector deposits, while interbank rates have spiked the most since 2008. 

Americans today are blissfully distracted by their iGadgets, plotting out their holiday shopping strategies, leasing new cars, eating out, and buying advance tickets to the new Star Wars movie. They don’t see the wicked winter squalls ahead which will try their souls. We are experiencing the lull before the storms, but the storms are surely coming. The potential for catastrophe is high and burying our heads in the sand is not a strategy.

The recent attacks in Paris evoke strong emotions for many people, but investors need to look through those feelings to the short, medium, and long-term implications. We believe Paris may mark an important turning point for Europe and the global business cycle... but for different reasons than you may think. There is a chance that the slow disintegration of Europe will drive more capital onto US shores, boosting valuations and fueling a blow-off top in the US equity market; but beware global shocks and take any rally as a chance to get defensive.

With at least 83 percent of these companies' operating cash being spent on debt repayments - the highest on record - the renewed collapse in crude oil prices of the last month has renewed focus on the tidal wave of defaults that the credit market is increasingly pricing in (and stocks not).

The US E&P sector could be on the cusp of massive defaults and bankruptcies so staggering they pose a serious threat to the US economy. Without higher oil and gas prices — which few experts foresee in the near future — an over-leveraged, under-hedged US E&P industry faces a truly grim 2016.  "I could see a wave of defaults and bankruptcies on the scale of the telecoms, which triggered the 2001 recession."

According to Bank of America there sill be no recession until 2027, if ever, and the S&P will hit 3500 by 2025. Just one thing we would like to know: does Bank of America anticipate another bailout of Bank of America during this upcoming golden age a la 2008, or is that also impossible to predict.

Here is a sight that will never be seen in the US: the CEO of the country's largest investment bank arrested and perp walked after accusation we was part of the nation's largest corruption scandal.

The world is changing in so many ways which is ignored by markets and commentators. The Paris event is yet another wake up call for the markets on geopolitical risk, for the under-investment in education and basic research, but most importantly for how we continue to ignore facts. First it will get worse... we are simply not prepared for geopolitical risk to matter for markets neither are we yet willing.

For the 7th month in a row, Durable Goods New Orders fell year-over-year (down 1.0%). This has not occurred without a recession. While MoM the headline number rose 3.0% (beating the 1.7% rise expected), it appears driven by another one-off surge in Boeing plane orders as Capital Goods Shipments Ex-Air fell 0.4%. Finally, the inventory to shipments ratio re-accelerated in October, back near cycle highs.

Following yesterday's dramatic geopolitical shock, U.S. equity index futures rise as Russia has not escalated the confrontation with Turkey as some had feared, while Asian shares fall, reversing earlier gains. European stocks are rallying and the euro is falling on the back of a Reuters report that the ECB is mulling new measures to prop up lending, although it’s not clear at this point what the real impact from these measures would be.

Wondering where the world's economies are in the leverage cycle? Well, wonder no more. SocGen is out with its updated "leverage clock" which shows you where the bank thinks everyone falls in terms of ticking debt time bombs. As you'll see, SocGen's assessment is quite generous...

November has been a banner month for black swans. From Leftist political coups in Portugal to terror attacks in Paris to downed Russian fighter jets in Syria, the market is gradually learning to expect the unexpected. In its latest Quarterly Economic Outlook, SocGen outlines five political and economic black swans that could land in 2016.