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Gap Between Economic Reality And Market Fantasy Hits New High

clokey's picture





 

As I noted in an article published Thursday morning, the government bought three quarters of a percentage point worth of growth in the third quarter leading several hapless commentators to opine on national television that the U.S. economy was not only on solid footing but was in fact experiencing "above trend" growth. Of course if you're the mainstream financial media what is good for the Q3 goose is not necessarily good for the Q4 gander and so when fourth quarter GDP printed in contraction territory Wednesday, viewers were encouraged (much to the chagrin of a predictably irate Rick Santelli) to discount "volatile" government consumption expenditures and focus only on the components that made a positive contribution.

If Thursday's headlines are any indication however, it is going to get more and more difficult to turn a blind eye to the inescapable reality that is America's centrally planned economic quagmire. Put differently, data out Thursday suggests that on many fronts, the economic chickens are coming home to roost (to continue with the "foul" analogies). Jobless claims for instance, had their biggest jump (38,000) since November last week and while the spin campaign continues (witness the "slowly growing labor market" and "we're still below the magic 400,000 level" banter) common sense dictates that if weekly claims were at 377,000 as of January 26 of last year and 368,000 as of January 31 of this year, really not much has changed at all.

Witness also the dramatic rise in the personal savings rate in December (6.5% of disposable income compared to 4.1% in November). That's the highest rate since May of 2009 when the Dow was sitting at around 8,500. Now obviously this was attributable to the concurrent surge in personal incomes but equally obvious is the fact that the personal income surge was simply attributable to special dividends and other disbursements being pulled forward to avoid higher taxes in 2013. So that part of the equation is a wash; that is, personal incomes aren't going to grow at that pace going forward unless you think incomes can rise at 2.6% with wages growing at a laughably slower pace. For illustration purposes, have a look at the following graphic which shows the hilarious disconnect between sequential personal income growth and monthly wage growth:

So the point here is that if retail sales only rose .5% in a month where personal incomes rose 2.6% and the savings rate rose 2.4%, that should tell you that even in the event of an extraordinary rise in disposable cash, Americans are too scared to spend it. They are so scared in fact, they'd rather park their cash in a savings account on which they are receiving a negative real return. That doesn't bode well for consumption going forward -- sorry Steve Liesman.

Another piece of ominous news out Thursday came courtesy of the Wall Street Journal. In a piece entitled "Risky Student Debt Is Starting To Sour," the Journal notes that not only is the rate of subprime student loans 90 days or more past due rising (now at a staggering 33%), but the percentage of all student loans classified as "subprime" is also rising and, in an eery coincidence, also hit 33% last year. Reading the article I can't help but harken back to my own piece from January 10 in which I said the following about the consequences the bursting of the student debt bubble would have:

"The student-debt bubble is yet another defining characteristic of the "New Normal" and is perhaps far more important in terms of its potential deleterious effect on economic progress than negative real wage growth, depressed capex, or a hamstrung housing market...Rising delinquency rates should serve as the proverbial canary in the coal mine and indeed suggest that this is no more of a far-off problem than the subprime crisis was in 2007. This is perhaps the best reason of all to bet against the U.S. economy in 2013...A crippled consumer equals crippled consumption, hobbled corporate profits, and a sluggish economic environment."

The Journal quotes a Moody's senior director as saying essentially the exact same thing only in a more deadpan fashion:

"The high debt loads could weigh on consumer spending and the economy."

Investors (or algos, or highly leveraged institutional clients, etc) are of course taking all of this in stride. Stocks traded near the flat line Thursday morning proving once again that one of three things must be true: 1) the market's collective analytical reasoning skills are quite poor, 2) no amount of bad news is enough to trump an overwhelming tendency to deny reality, or 3) trillions of dollars in excess liquidity make negative economic news largely irrelevant.

 


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Thu, 01/31/2013 - 18:28 | Link to Comment Never One Roach
Never One Roach's picture

We'll bail 'm out...not to worry. Just keep a good store of K-Y lube.

Thu, 01/31/2013 - 17:32 | Link to Comment Tombstone
Tombstone's picture

All you hear is that the economy keeps doing better.  And yet, GDP is stagnant.  Benny has to print $1.3 trillion to get a $1 trillion boost in the economy because $300 billion goes to pay for fraud, waste and abuse by a government to big to sit on the pot or get off it.  Wait till Obutnut care starts up full-tilt; that is when the deficit will truly go full-tilt....and the market will blast ahead with its head in the sand.

Thu, 01/31/2013 - 15:47 | Link to Comment Clowns on Acid
Clowns on Acid's picture

No worries. Expect the Jobs number (massaged / seasonally adjusted, etc) tomorrow to reflect fantasy.

Buy, buy, buy.

Thu, 01/31/2013 - 14:51 | Link to Comment orangegeek
orangegeek's picture

Markets have always led the economy.  Always have.  Always will.  The markets usually lead by 3 months.

 

We can say that Ben and Barry are holding up markets, but about $4TRILLION a day is traded in currencies each day in New York.

 

Ben and Barry's $3B per day doesn't even come close (that $1.1T per year than Ben and Barry blow uselessly).

 

And yes we are heading in the abyss, but for now, we are still bouyant.

Thu, 01/31/2013 - 14:50 | Link to Comment otto skorzeny
otto skorzeny's picture

US consumer says-"I'm not broke-I haven't maxed out all of my credit cards yet"

Thu, 01/31/2013 - 14:36 | Link to Comment Bam_Man
Bam_Man's picture

A trillion dollars of Federal Deficit spending, the Fed printing $85 billion a month forever and GDP still prints negative for the 4th quarter. Something is very wrong here.

Thu, 01/31/2013 - 14:20 | Link to Comment q99x2
q99x2's picture

They have to boost GDP or derivatives markets implode. Math refuses to concede to fraud at a certain point.

Thu, 01/31/2013 - 14:15 | Link to Comment adr
adr's picture

I just got a whole bunch of bad business news from everyone I am involved with. Instead of making product this year, perhaps we should just invest all our remaining cash in AMZN.

Amazon claims to sell our products, even though we never sold to them, so I guess buying their stock means we are doing business with them. Wow, we can make a profit and have our product sold without actually producing anything!!!!

NEW NORMAL FOR THE WIN!!!!

Thu, 01/31/2013 - 13:43 | Link to Comment Its Only Rock N Roll
Its Only Rock N Roll's picture

You can't always get what you want.....but if you try sometimes...

Thu, 01/31/2013 - 13:35 | Link to Comment geno-econ
geno-econ's picture

All part of the new Fed  Super Bowl mentality. Only difference is in Football Super Bowl at least a  50% chance of one side winning, wheras in Fed Super Bowl everyone has a real chance of losing big time.  The dumb muffet fans are the same in both Bowls. 

Thu, 01/31/2013 - 16:48 | Link to Comment Nobody For President
Nobody For President's picture

The only Super Bowl is a self-cleaning toilet.

Thu, 01/31/2013 - 14:01 | Link to Comment Freddie
Freddie's picture

The public has no clue because the media, ALL of TV and Hollywood tell them Ob-MAO is the most wonderful thing and the economy is recovering.   The sheep who watch TV and Hollywood enable it.  ALL TV is shit and Fox is no better.

Thu, 01/31/2013 - 14:06 | Link to Comment otto skorzeny
otto skorzeny's picture

Fox is busy trying to smear shit all over Hagel because he is an "anti-semite"(whatever the fuck that is)-they should know that once Hagel is nominated he will bend over backwards to prove he is a good little AIPAC bootlicker

Thu, 01/31/2013 - 13:33 | Link to Comment Racer
Racer's picture

4. The 'market' is now just a computer game

Thu, 01/31/2013 - 13:47 | Link to Comment Widowmaker
Widowmaker's picture

More like a coffee pot being called a computer.

Have a cup of fraud you pay for repeatedly.

Thu, 01/31/2013 - 13:20 | Link to Comment nobusiness
nobusiness's picture

Not that I think consumers are looking to spend more, but if dividends went out in december to beat the tax increase wouldn't that spending show up in January?

Thu, 01/31/2013 - 14:18 | Link to Comment adr
adr's picture

Not if you're saving the cash to pay for your tax bill next year. Plus the nice 38% increase in health care premiums didn't help.

Thu, 01/31/2013 - 13:15 | Link to Comment madcows
madcows's picture

The markets are not the economy and vice-versa.

Thu, 01/31/2013 - 13:13 | Link to Comment RSBriggs
RSBriggs's picture

4.) All of the above. 

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