recovery

Pending Home Sales missed expectations by the largest amount since September of last year and printed negative (-0.5%) versus hope of +1.0%. It seems our self-fulfilling housing recovery is not so self-fulfilling or recovering...this makes 13 of the last 15 macro data prints in the US a miss. What is perhaps most surprising is the fact that this is from our old friends - the NAR - who seem comfortable 'fabricating' whatever number they need and in a wonderful ignorance of the reality of the situation (or uncomon confidence in extrapolating exceptional trends), Larry Yun (NAR Chief Economist) notes "The spring home buying season looks bright because of an elevated level of contract offers so far this year" which seems odd given the fall MoM and the clear warm-weather demand-pull that has occurred (but we assume he is spinning the better-than-expected YoY data that marked a pick up from the last abyss we saw in home sales). We also note that while YoY comps are the positive spin, the Jan print was almost the highest 'rise' seasonally for January of the last 10 years and this print (for Feb) is well below seasonal average (and near the worst of the last 5 years).

While it appears to us that Bernanke's message was loud and clear, there are those who need validation and peer-confirmation. Such as that from the firm whose alumni run the Fed, namely Goldman Sachs. Below is Jan Hatzius' take on the "surprising" Chairman speech which essentially said QE can and will come at any time there is a downtick in the market, masked by the unemployment rate rising to its fair value, as estimated by Gallup, somewhere around 9%.

Earlier this morning, strategically timed just in advance of the Chairman's tacit admission that everything attempted to date has once again failed to stimulate the economy as now both housing and soon employment have resume their drop, New York Fed released a note titled "Prospects for the U.S. Labor Market" which in not so many words explains why there are none. While the analysis is the same that has been presented here over and over, confirming that the jobs recovery has been anything but, and thus setting the stage for today's Bernanke preannouncement to either a March NFP miss or more QE at the April FOMC meeting as Bill Gross tweeted yesterday, it has one chart that shows why when it comes to restoring a virtuous cycle this time is different, and why endless central planning may have finally broken traditional economic assumptions. The chart below is perhaps the only one worth noting. Spot the odd "recovery" out.

Curious why futures and PMs both soared out of the gate at 8am? Look no further than the Chairman of the Federal CTRL-Preserve who is speaking at the National Association for Business Economics and just made a very strong hint that the New QE (or is that the NEWER QE) is coming. And there are those mocking Bill Gross for saying the April FOMC would lead to the next QE announcement (something we expounded on extensively yesterday). And here is the most idiotic statement uttered by the Fed: "If this hypothesis is wrong and structural factors are in fact explaining much of the increase in long-term unemployment, then the scope for countercyclical policies to address this problem will be more limited.  Even if that proves to be the case, however, we should not conclude that nothing can be done." Recall what JPM said about central planning breaking the virtuous cycle just two days ago. The Fed has just admitted it... but it does not mean that the Fed will be forced to print print print infinitely more. After all, it's all there is.

All you need to read and more.

There is a good reason why we need not encourage Arianna Huffington to believe she is an important thinker of our time. I believe ridicule is a good way to inform her of that.

In the last few months we have presented various analyses, both ours and those of Goldman and even Jon Hilsenrath, on why one of the core economic empirical relationships: Okun's law, is now broken. Subsequently we presented another parallel line of inquiry - namely that in order to preserve the illusion of a recovery, the Obama administration (with help from the Fed) has engaged in a quality-for-quantity job transfer, where America is creating increasingly more jobs of lower quality (the bulk of which are part-time), which in turn is leading to less proportional personal income tax revenues, and thus to a secular shift in an indicator which is even more important for US economic growth than simply the number of jobs "gained" each month - labor productivity. Today, JPM's Michael Feroli ties these two perspectives together in an analysis that has extremely damning implications for the US, and global, economic growth prospects. In a nutshell, Feroli finds that "Productivity, which used to be procyclical, has now turned countercyclical" which in turn means that "if labor is no longer a quasi-fixed factor of production this may eliminate one type of non-convexity in production, thereby reducing the likelihood that the economy has multiple equilibria and is subject to self-fulfilling prophecies" or said somewhat simpler: "the conditions for self-fulfilling prophesies in the macroeconomy may no longer exist." Still confused: central planning, and the Obama vote grab has killed the "virtuous cycle"... Which in turn means that everything America is trying to accomplish is now a lost cause, as every incremental dollar spent, whether by fiscal and monetary policy, is pursuing an outcome that is now theoretically and practically impossible to achieve!

I firmly believe we will see Europe start to crumble during the May-June window of time. We have a confluence of political (French, Greece, Irish elections), fundamental, seasonal, technical, and monetary factors (Operation Twist 2 ends in June) occurring in that time period make the possibility of a banking Crisis in Europe higher than at any other point in the last three years. 

While stocks staged an 'interesting' recovery this afternoon, it was not enough to save them from a fate-worse-than-death - a red-weekly-close! The only (and therefore) largest drop in the S&P 500 of the year (after GS long stocks call) was dominated (beta-adjusted) by the largest 30Y Treasury yield improvement of the year (after GS said get short Treasury futures). It seemed we reverted to good-is-good, but bad-is-better trading this afternoon (though technically we perfectly filled the ES day-session gap from Wednesday), as dismal global macro data spurred a surge in commodities, rally in stocks (carried by the QE-high-beta faves Energy/Materials/Financials but not Industrials notably), compression in Treasury yields, a drop in the USD as QE-hope was back on (and Lockhart helped a little in the last hour with some punchbowl temptations). Futures volume was below average but not dramatic though cash (NYSE) volumes were on the weaker side. The small drop in the USD was dwarfed by the pop in commodities as Silver outperformed but only Gold managed to get back into the green for the week. Oil popped $2-3 around the US open but remains down on the week. Treasuries are 15-20bps lower in yield from their Tuesday highs and 2s10s30s has dropped modestly on the week. AUD reverted from yesterday's late lows and rallied (mildly supportive of the equity move) but JPY kept on rallying (with a small selloff this afternoon) leaving the USD (DXY) in that same very narrow range for the week ending the week down 0.55%. Broadly speaking risk assets did not participate as positively as stocks this afternoon as HY (and HYG) underperformed stocks once again though VIX managed to end under 15% again as the TVIX compressed back down close to its NAV and VXX closed at new lows as the term-structure flattened a little more. Oh yeah, and BATS and AAPL flash-crashed...

In an interview with Louis James, the inimitable Doug Casey throws cold water on those celebrating the economic recovery. "Get out your mower; it's time to cut down some green shoots again, and debunk a bit of the so-called recovery."

Dallas Fed Confirms that Big, Insolvent Banks Are Killing Our Economy ... and Democracy

In only three more years you're talking $20 trillion in public debt for the USA and a GDP going nowhere fast. Add to this that demographics are not encouraging and taxes of all sorts will have to rise. Cuts will be symbolic because the political pain will be unbearable. Without productive new investment, then debt service soon outstrips income growth and the economy enters a death spiral of declining productive investment, ever expanding debt and ever higher debt service costs.

...of New One Family Homes for Sale (source) which at 150,000 is the lowest print... Ever. And no, "it can only go up from 300,000, 250,000, 200,000, 150,000... 0" does not work with us.

BarCap said it expects precious metals to be one of the commodity price leaders in the second quarter, citing the "resumption of the kind of currency debasement/inflation concerns that have been the big driver of gold and silver prices over the past 12 months". It recommended that investors take a long position in December 2012 palladium, saying lower Russian exports should push the market into a supply deficit and bring prices "significantly above current levels" by later this year. BarCap put a second-quarter price of $745 per ounce for palladium futures on the London Metal Exchange, versus the past four weeks' average of $701. Spot palladium on the LME hit a session bottom below $645 on Thursday.

European cash equity markets were seen on a slight upward trend in the early hours of the session amid some rumours that the Chinese PBOC were considering a cut to their RRR. However, this failed to materialise and markets have now retreated into negative territory with flows seen moving into fixed income securities. This follows some market talk of selling in Greek PSI bonds due to the absence of CDSs. This sparked some renewed concern regarding the emergence of Greece from their recovery. Elsewhere, we saw the publication of the BoE’s financial stability review recommending that UK banks raise external capital as soon as possible. This saw risk-averse flows into the gilt, with futures now trading up around 40 ticks.