Richmond Fed

And so the double dip confirmation resumes, with the Richmond Fed printing at -10, the lowest since June 2009, well below consensus of -5, a collapse from June's -1, and the lowest since June 2009. From the report: "In August, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — declined nine points to -10 from July's reading of -1. Among the index's components, shipments lost sixteen points to -17, and new orders dropped six points to finish at -11, while the jobs index inched down three points to 1." And more: "Other indicators also suggested additional softening. The index for capacity utilization declined eight points to -14 and the backlogs of orders fell seven points to end at -25. Additionally, the delivery times index moved down twelve points to end at -4, while our gauges for inventories were virtually unchanged in August. The finished goods inventory index held steady at 17 in August, while the raw materials inventories index added one point to finish at 19." And the final nail in the economic coffin was New Home Sales which came at 298K, down from 312K upward revised prior, and missing the consensus of 310k: the lowest in 5 months. "Housing data over the past three months indicates that there is little appetite in the consumer sector to take on the risk of purchasing a home at a time when prices are likely to decline further,’’ says Bloomberg economist Joseph Brusuelas. As Bank Of America (RIP) said yesterday, one false word out of Beranke on Friday, and we will see what could possibly be the most epic market crash ever. For those wondering why stocks surged on this horrible news: look no further than the central planners in the Marriner Eccles building who are now expected to do "the right thing" for stocks.

Two economic data points today - New home sales and the Richmond Fed index. Since LaVorgna just hiked his Richmond Fed estimate, leading the consensus to rise from -7 to -5, we would be particularly concerned about this number missing by a mile. Also, Treasury issues $95 billion in new 4 week, 52 week and 2 year debt, for net new cash of $46 billion.

Another set of ugly economic data to add to the earlier Case Shiller miss: the Richmond Fed officially contracted despite expectations of a rise from 3 to 5, dropping to -1. This means that the recent rebound from negative to positive and back to negative is indicative there is something far more broken with the economy than just a transitory soft patch. New home sales also deteriorated dropping from 315K to 312K, on expectations of a rebound to 320K. The median sales price was $235,200, and the average $269,000, on 6.3 months of supply. As Joseph Brusuelas of Bloomberg said, "Nothing in data suggests any turnaround." Yet the irony is that the end consumer: the entity that is getting pounded daily by this administration and the oligarchy, just became more confident, with the number beating consensus of 56 and printing at 59.5... on Hopium! Yes, the current conditions declined from 36.6 to 35.7, but at least American have managed to revert to their standard optimistic outlook, and the six month outlook surged from 71.6 to 75.4. Hilarious. Nonetheless unlike before when this goalseeked data point would have been enough to set off a massive buying spree by the HFT algos, today it is insufficient, and following the relentless barrage of bad economic data ES just took out overnight lows.

After yesterday's economic data drought, today brings the flood as we get new home sales and Case-Shiller prices, consumer confidence and the Richmond Fed index. We also get a small POMO as part of QE Lite and also two bill and one note auctions, sucking a combined $73 billion in capital out of the market.

While Bill Gross may be ignored, what a former Fed chairman is saying may be a just a little more important

• BROADDUS SAYS ANY DISINFLATION MAY PROMPT FED TO CONSIDER QE3
• BROADDUS SAYS FED UNDERSTANDING OF INFLATION HAS IMPROVED
• FORMER RICHMOND FED CHIEF BROADDUS SPEAKS ON BLOOMBERG TV

Now what?

(and no, his first name is not Calvin).

The latest and last regional index confirms that the economy is now not only slowing its rate of expansion, but is in fact contracting. The narrative is plain ugly: "The index of overall activity was pushed into negative territory by weak readings for shipments and new orders, while employment growth held steady. Other indicators suggested additional softness. District contacts reported that capacity utilization turned negative and backlogs fell further, while delivery times grew more slowly. In addition, manufacturers reported an uptick in finished goods inventory growth." But not all is bad: for example those predicting inflation are once again proven correct: "Distrcit manufacturers reported that raw material prices increased at an average annual rate of 6.12 percent in May - the highest reading since the inception of our surve in December 1993 - compared to April's reading of 4.81 percent." Fear not: it is "transitory." And 82% of experts say no QE3 is coming so....

Yesterday it was the Dallas Fed confirming our assumption that the US economy in Q2 has hit stalled speed. Today, it is the Richmond Fed which plunged compared to expectations and the March print of 20, instead dropping to 10, and indicative of a major slowdown in the manufacturing sector. From the index: "In April, the seasonally adjusted composite index of manufacturing activity – our broadest measure of manufacturing – fell ten points to 10 from March’s reading of 20. Among the index’s components, shipments decreased seventeen points to 6, new orders dropped ten points to finish at 10, and the jobs index eased two points to 14....All broad indicators – including shipments, new orders and employment – continued to grow but at a rate below March’s pace. Other indicators were mixed. Fifth District contacts reported that capacity utilization continued to grow more slowly, while backlogs turned slightly negative. Vendor delivery times edged higher and raw materials inventories grew at a somewhat higher rate." Now "Below March's pace" means trending Q2 GDP is now at or below 2%. But that's fine: somehow the economy will really hockeystick in Q3. And if not, there is QE3, 4 and 5. And the kicker, as usual, Prices Paid jumped as Prices Received plunged: which is always bullish for (collapsing) margins. Elsewhere the CON board called 7 Wall Street CEOs w

The trend in house prices appears to be worsening. We expect an acceleration in the decline in the Case-Shiller measure for February. Modest POMO closing at 11am will do little to offset the $35 billion in 2 Year notes to be auctioned off at 1 pm.

Yesterday Richard Fisher, now it is Jeffrey Lacker's turn to speak out against QE2 and inflation concerns. Just more jawboning or are we actually going to see more dissenting votes finally? Keep in mind Lacker is an alternate member on the FOMC board in year 2011 and is not a voting member. From remarks presented by Lacker to the University of Delaware. "The Committee recognized that the provision of further monetary stimulus at this point in the business cycle is not without risks, and therefore committed to regularly review the pace and overall size of the asset-purchase program in light of incoming information and adjust the program as needed. The distinct improvement in the economic outlook since the program was initiated suggests taking that re-evaluation quite seriously. That re-evaluation will be challenging, because inflation is capable of accelerating, even if the level of economic activity has not yet returned to pre-recession trend."

And risk off. 7 out of 8 Richmond Fed indicators declined, with just Vendor Lead-Time remaining flat at 0. Number of Employees plunged from 12 to -3. And w/r/t the now almost certainly sub 50 print, Shipments, Volume and Backlog all plunged by 10 or more points. In a word, total diffusion index massacre. As for consumer confidence: somehow the record September surge in stocks did nothing to make people forget juw how broken the US economy is, and that they do not enjoy being lied to about recessions being over. The Conference Board printed at 48.5, compared to 53.2 revised in July, on expectations of 52.4.

The latest out of the Richmond Fed is a joke of a paper that while analyzing the possibility that the entire stock market and dollar carry trade is one zero cost of capital-funded bubble, skips over this possibility and instead goes on to analyze the "factors that could contribute to a fundamentals-based explanation for the recent rally in certain risky asset markets." Spoiler alert: No bubble - it's all based in sound reality.

Yesterday it was Philly Fed's Plossner, today it is Richmond Fed's Jeff Lacker who joins the chorus demanding an end to Bernanke's insane monetary policy of drowning the market with unprecedented liquidity which is not getting to consumers but merely propping Amazon stock at a bubblelicious 100x P/E. In a speech before the Charlotte Chamber of Commerce, Lacker stated: "The perception of inflation risk could be particularly pertinent to the current recovery, given the massive and unprecedented expansion in bank reserves that has occurred, and the widespread market commentary expressing uncertainty over whether the Federal Reserve is willing and able to promptly reverse that expansion... If we hope to keep inflation in check, we cannot be paralyzed by patches of lingering weakness, which could persist well into the recovery. In assessing when we will need to begin taking monetary stimulus out, I will be looking for the time at which economic growth is strong enough and well-enough established, even if it is not yet especially vigorous. Although it is hard to predict when that will occur, I can confidently predict that monetary policy will remain particularly challenging for some time to come." Then again, the stock market does not seem to share Mr. Lacker's concerns.

The deep thinkers at the Richmond Fed have come up with an analytic report on mortgages. The scary conclusion is that when the government is the provider of mortgages there is a significantly higher probability that the loan will default versus a private sector lender. In other words, Uncle Sam is a "soft touch" lender, no need to pay.That conclusion will not sit well with Congress, so it is unlikely that this report will see the light of day. I doubt that many in Congress could read it anyway.

The report breaks down each individual State's rules on defaulting on a mortgage. A must read for those thinking of going down that path.

Of all organizations, the Richmond Fed was the last place one would expect a broad scope critique of rating agencies. Yet in a piece released today, this is precisely what the bank did, potentially paving the way for the next big whiplash as ever more politicians are already contemplating the next major scapegoat for when the market turns out to have been priced in just a little too much to perfection.