University Of Michigan
While the government's survey of consumer confidence saw new cycle highs - progressing the multiple expansion dream - the University of Michigan (private) survey has been falling for 3 months and is now at its lowest since November. Both current conditions (reality) and expectations (hope) missed expectations (overall index missed by the most in 5 months) but "hope" did rise modestly from 69.4 to 70.0. Must have been a 'winter stormy' week when UMich surveyed consumers...
Just last week Goldman noted that February was "the busiest month in the buyback desk's history," so one has to wonder just what management is thinking when the Wall Street Journal reports that corporate insiders are more bearish than they have been at least since 1990. According to this adjusted measure, there have been two prior occasions when the insider ratio got almost as bearish as it is today - early 2007 and early 2011 - and the first came a half a year before the beginning of the worst bear market since the 1930s. Simply put, it seems management teams are using their company's balance sheet as their own personal piggybank.
So far the overnight session has been a replica of yesterday, with the all important carry trade once again fizzling overnight during Japan trading hours, and dipping as low at 101.60 before staging a modest rebound to the 101.8 level. We expect the "invisible" 102.000 USDJPY tractor beam to be again engaged shortly and provide market support and/or levitate stocks higher as the now standard selling in Japan, buying in the US trade pattern repeats. On the other hand, US equity futures appear to have decoupled from the pure carry trade, and instead latched on to USD weakness and EUR strength following European Q4 GDP data, which came at 0.3% on expectations of 0.2%, up from 0.1%. Considering the constant adjustments to the European definition of GDP, at this point Mongolia would have been able to demonstrate growth if it was in Europe (but apparently not Greece which once again missed GDP expectations with Q4 GDP of -2.6% vs Exp. -2.0%). Expect ES and USDJPY to recouple shortly, as they always do - the only question if the recoupling will take place lower or higher.
Today, more than 10,000 Baby Boomers will retire. This is going to happen day after day, month after month, year after year until 2030. It is the greatest demographic tsunami in the history of the United States, and we are woefully unprepared for it. We have made financial promises to the Baby Boomers worth tens of trillions of dollars that we simply are not going to be able to keep. Even if we didn't have all of the other massive economic problems that we are currently dealing with, this retirement crisis would be enough to destroy our economy all by itself. During the first half of this century, the number of senior citizens in the United States is being projected to more than double. As a nation, we are already drowning in debt. So where in the world are we going to get the money to take care of all of these elderly people?
People Powered Privacy Savior ... Or Honey Trap Pushed By the Central Banks and TBTF?
Weak results from Intel, American Express and Capital One, not to mention Goldman and Citi? No problem: there's is overnight USDJPY levitation for that, which has pushed S&P futures firmly into the green after early overnight weakness: because while the components of the market may have such trivial indicators as multiples and earnings, the USDJPY to which the Emini is tethered has unlimited upside. And now that the market is back into "good news is good, bad news is better" mode, today's avalanche of macro data which includes December housing starts and building permits, industrial production, UofMichigan consumer confidence and JOLTs job openings, not to mention the up to $3 billion POMO, should make sure the week closes off in style: after all can't have the tapped out consumer enter the weekend looking at a red number on their E-trade account: they might just not spend as much (money they don't have).
The economist Herbert Stein once said that if something can't go on forever, it will stop. The pattern of the last few decades, in which higher education costs grew much faster than incomes, with the difference made up by borrowing, can't go on forever... There is no point in trying to preserve the old regime as "working your way through college" is now impossible. For an 18-year-old, investing such a six-figure sum in an education without a payoff makes no more sense than buying a Ferrari on credit.
- BAD TRADE #1 For 2014: Ignoring Mean Reversion
- BAD TRADE #2 For 2014: Which-flation?
- BAD TRADE #3 For 2014: Forgetting Late Cycle Dynamics
- BAD TRADE #4 For 2014: Blind Faith In Policy
- BAD TRADE #5 For 2014: Reaching for Yield During Late Cycle
Of course, why not. University of Michigan Consumer Confidence jumped from 75.1 to a preliminary 82.5 beating expectations by the most on record. While we remain below the July 2013 highs, current conditions soared to the highest since May and the economic outlook spiked to the highest since August. This is the biggest absolute improvement in current conditions since December 2008.... and that ended well eh?
While moderate recovery in growth and inflation is BofAML's rates team's base case, there are numerous risks to that forecast. The risk of tapering is already quite well known and they suspect it may not result in the significant market-moving event many expect when it actually happens; however, the following downside and upside risks threaten BofAML's central scenarios for 2014 as well.
The best silver lining Goldman Sachs found when faced with the total and utter collapse in their global leading indicator swirlogram was - (probably) stabilizing. The only improving factor across all their global economic components was the US initial jobless claims (and that has been a farce wrapped in a debacle for 2 months of 'glitches'). Having led global industrial production for a few months, it seems the indicator is crashing back to reality as the summer's hopefulness is exsanguinated from hard and soft data around the world.
All bets are off.
Despite stock (not bond) euphoria yesterday that a DC debt ceiling deal was sealed leading to the second largest risk ramp of 2013, last night was spent diffusing the excitement as one after another politician talked back the success of a "non-deal" that Obama rejected, at least according to the NYT. As a result, with both retail sales data and the PPI not being released (and the only data of note the always leaked UMichigan consumer confidence) markets will again be at the behest of developments on Capitol Hill, with some talk from Republicans suggesting a deal as early as today could be possible in an effort to reopen government on Monday. It is entirely possible that talks could continue over the weekend though, which would ensure a gappy open to Asian markets on Monday.
Following yesterday's modest bounce in equities punctuated by the traditional last minute spike, sentiment has reverted lower once again, driven by the uncertainty surrounding debt ceiling talks in the US, where lawmakers have until next Tuesday to agree to a spending bill, or much of the government will shut down. The Senate will vote on a spending bill later today, which will then be sent back to the House putting republicans in a quandary (Politico explains the complications surrounding the GOP's "Plan C"). It was reported that US House leaders are considering postponing action on a bill to extend the US government's borrowing power, with the leadership discussing a change of strategy to complete action on the stopgap spending bill before debating the debt-limit debate. In FX, GBP strengthened across the board this morning after BoE’s Carney said he does not see a case for more quantitative easing.
Following the FOMC surprise, no less than twelve Fed speeches will provide some "clarifications" on where the Fed now stands. It is very likely that this subject will continue to dominate the discussions of market participants. At the same time, US data will get scrutinized after the recent weakening and to see how warranted the Fed's concerns were. Two US consumer sentiment surveys, durable goods orders, and the third reading of Q2 GDP are important. In addition, monthly consumption and income data for August provide more information on the third quarter and of course there will be interest in the latest weekly claims numbers after some distortions in recent readings.