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"We Are Experiencing More Than Just A 'Soft Patch'"
Submitted by Lance Roberts of Street Talk Live blog,
"The economy is amazing right now - employment is recovering, innovation is going and housing is reviving. What's not to love?" This was a statement I heard in the media to justify the recent rise in the stock market. In this past weekend's newsletter I went into significant detail in dismantling the bullish arguments with one point being the consistent weakness in the economic data.
The most recent release of the Chicago Fed National Activity Index (CFNAI) is the last of the components released each month that comprises the Economic and Employment Composite indexes. The April data for the CFNAI was not good with the manufacturing component confirming what we had already seen in most of the regional Federal Reserve manufacturing surveys. The overall CFNAI index plunged from to a negative 0.53 from a negative 0.23 in March. In both months, manufacturing production fell, down 0.4 percent in April following a 0.3 percent decline in March.
However, as opposed to recent media headlines boasting of the strength of consumer spending and housing, the consumer & housing sector was the second largest drag on national activity in April dropping from negative 0.15 in March to negative 0.17 in April. Employment also did not confirm the recent BLS report, which we suspected would be the case, as the employment component has fallen from a positive 0.35 in February to a positive 0.1 in March to ZERO in April. This is certainly not a trend that supports the much hoped for job growth in the near future.
Let's take a look at the two composite indexes to see what they are telling us about the economy and the most likely direction of the data in the months ahead. Both indexes are weighted average of the CFNAI, ISM, several Federal Reserve manufacturing surveys, the NFIB Small Business survey, Chicago ISM and the Leading Economic Indicators. The only difference between the two indices is that the employment composite is comprised of the employment components of the above as opposed to the overall activity components.
STA Economic Output Composite Index (EOCI)
The EOCI index fell sharply to 26.08 in April from 30.35 in March as the brief surge in activity from "Hurricane Sandy" finished working its way through the system. The chart below compares the EOCI index to real, inflation adjusted, GDP on a quarterly basis.
There are a couple of important takeaways with this index. The first is that both positive and negative trends in the EOCI index track very closely to the ebb and flow of GDP. The second is that historically when the EOCI index was below 30 the economy was either in, or about to be in, a recession. Currently, the economy is not running in recessionary territory, as of yet, but the trend of weakness in the macro economic data is somewhat concerning.
The chart below shows these corollary trends a bit better with the EOCI index, smoothed with a 3-month average, compared to the annual rate of change in nominal GDP.
What is most concerning is that while the asset prices are inflated with artificial interventions that trend of economic data has clearly peaked for the current cycle. Either the mainstream economists and analysts are correct and the economy is about to turn substantially stronger and play catch up with asset prices or asset prices will revert to catch up with the fundamentals of the economy. The latter is much more likely the case from a historical perspective.
STA Employment Composite
If you strip the employment components out of the EOCI index and weight them into their own composite index we find that the hiring intentions of employers is clearly weakening. The chart below shows the Employment Index smoothed with a 4-month average and compared to the annual rate of change in Total Non-Farm Employees.
As with the EOCI index above - employment activity clearly peaked in early 2012 and has begun to wane. The recent uptick in the employment index, remember this is a 4-month moving average, is due to the effects from the uptick in economic activity from "Hurricane Sandy." This index will turn down in the next couple of months as the recently monthly data points have declined.
What is clear from the two composite indexes is that the broad economy, and by extension underlying employment, has clearly peaked and has began to weaken. This is well within the context of historical trends and time frames. While the mainstream analysts and economists continue to have optimistic views for a resurgence in economic activity by years end the current data trends, both globally and domestically, suggest otherwise.
As we discussed recently:
"A wave of "disinflation" is currently engulfing the globe as the Eurozone economy slips back into recession, China is slowing down and the U.S. is grinding into much slower rates of growth. Even Japan, despite their best efforts through a massive QE program, cannot seem to break the back of the deflationary pressures on their economy. This is a problem that has yet to be recognized by the financial markets.
The recent inflation reports (both the Producer and Consumer Price Indexes) show deflationary forces at work. Wages continue to wane, economic production is stalling and price pressures are falling. More importantly, there are downward pressures on the most economically sensitive commodities such as oil, copper and lumber all indicating weaker levels of economic output. The battle against deflationary economic pressures has been what the Federal Reserve has been forced to fight since the financial crisis. The problem has been that, much like "Humpty-Dumpty", the broken financial transmission system, as represented by the velocity of money, can't be put back together again."
The real concern for investors, and individuals, is the actual economy. We are likely experiencing more than just a "soft patch" currently despite the mainstream analysts rhetoric to the contrary. There is clearly something amiss within the economic landscape and the recent decline in the economic, employment and inflation data are telling us just that.
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'Bouyant' bitches!
Bou-yah
"It's all going to end well"
-Dead man
I told you I was sick.
~written on a tombstone
clint eastwood spaghetti western....................................
I've seen that one down in Key West- pretty funny.
Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal........(Warren Buffet). We are not talking about pressure cookers here folks..........start worrying about counter party risk.........
Guys/Gals look at the minute volume in the SPY today and at the amount of money that was made/lost depending when you bought sold, I run some basic numbers and saw errors of 600 million dollars in just one minute, also the volume at the close was way over what it normally is, like somebody desperately started to buy everything to prevent a further fall, like 3-4 million shares a minute near the close. Some people were unloading like crazy and others were buying like there will be no opportunity to buy at this bargain prices ever again.
These gyrations of the market, 4.5 points move on the SPY are typical of a chaotic system getting close to its stability boundary, sad to say. Today it took a lot of energy, probably 1,670,000,000 million dollar in 5-6 minutes to keep the market from falling like a skydiver to the ground with no parachute. As the chaotic divergences progress and the girations increase in size, similar but not equal to a resonant behavior, the amount of money that it will take to maintain its stability will grow factorially (exponentially is way too slow)...
Until next time,
Engineer
I have decided: Jim Rogers is an infalted turd with no original ideas. His bow tie should be stripped from him.
Pop goes the flotation device
"more than a soft patch"..... ah yeah, we are in a hard patch of tough sticky tar, baby
Well then, they'll just add some heat and soften that shit right up!
QE4 ...MOAR !
born and bred in the briar patch bitchez
Continuous downhill slide since 1989...hmmm...what happened then?
Obviously, we need another Hurricane Sandy.
Except this time to "fix employment" it had better be at least a Category 4 at landfall
Four? Crank that bitch up to 11 a la Spinal Tap.
One more time before I go; "beating expectations" all... the... way... down...
Odd that both treasuries and the market was being sold today.
Big "hookers and blow" planned for the long weekend boys?
Lots of folks certainly looking to get out of their positions today.
what do they know?
Prolly on the advanced notification list of whatever was happening
at the non scheduled G7 meeting last weekend.
Add that to Obozo's meeting with the PD's, and Issa's committee private economic
brief ,and there are fires raging unseen.
SHF maybe ?
"Lots of folks certainly looking to get out of their positions today."
If you rode the market from 2011 when the SPY was 100 and you don't get out and stop to think and see what happens, (or if you are ambicious, at the least do an Option substitution strategy, where you bet the market will keep on going up with call options) with the economy for a while, you are either a super fool, an idiot or a PIG, and guess what "PIGS GET SLAUGHETERED"!!! That is the basic rule of invessting. People that have made 67% in two short years and don't get out are suicidal, no matter what you mutual fund manager tells you.
I hope people don't confuse paper gains with realized gains, if they do they are dead...
Until next time,
Engineer
Hey! The hot chinese girl with the giant jugs in the purple dress is back! WHO SAID IT'S ALL BAD NEWS AT ZEROHEDGE??
with head obviously photoshopped onto another body, but it's great all the same, even the women are fantasy bubbles
yeah....great....Mrs. Rainman snuck into my man cave yesterday and all she saw was scanty clad titties on screen left...thanks a lot. Busted the only time I was innocent... kinda sucks
Looks like the real economy is bracing for the ObamaScare clusterfuk .
Deflation is a greater enemy to ben then inflation. He will never turn off the printer
Bullshit, this is about power and control of real assets, period. Ben is well-studied, he knows that no currency has evet been killed by deflation.
You mean these "real" assets? Sorry, no price discovery for the muppets.
http://silverdoctors.com/the-dtcc-fraud-its-owned-by-the-banks-rob-kirby/
The Fed seems pretty firm on not allowing any competing currency. Competing with 37 trillion dollars in commodities (mainly precious metals) gone off the books will take forever to realize back into the system. Just my opinoin, but I still stack.
Blythe Masters position CNBC.
http://silverdoctors.com/rob-kirby-blythe-masters-lays-an-egg/
Nailed it... that's his worst fear. Wake me up at Dow 30k.
OT FYI. FDIC Bank of England agreement, pdf bottom left.
http://www.scribd.com/mobile/doc/136865096/html5
so his idea to combat deflation was to blow an even more epic bubble? bullshit, the bernank wants one thing and one thing only, to afford billionaire insiders the chance to steal even more before it all goes to shit permanently. one more pump and dump, for old time's sake.
*sigh*
What is wrong with deflation. Prices move before wages - and if one is a wage slave and not a 1%, then deflation is the way to go.
If you own productive assets and 'things' then you want inflation - also if you are in debt up to your eyeballs.
Every monetary and fiscal policy choice benefits one party to the detriment of another. If you are benefitting debtors and 1%'ers then you are doing so by stealing from savers and wage slaves.
The government's fix... More taxes and higher healthcare costs. That should fix everything alright.
Let it officially double dip already.
Many Americans never escaped the "Great Recession" in the last 5 years but that's besides the point. The propaganda is firing on all cylinders saying day after day how great this recovery is. People know different because they're not able to participate in this great recovery. Some have regained access to credit and get a chance at rebuilding. But this is not the same economy we knew prior to 2009 when people awash in credit were consuming and buying big ticket items whether they could afford them or not.
That was a false economy in itself and it crashed. The recovery will never reach those levels again and I wish the media would finally admit to that and stop the lies. The economy that we're entering into is an economy where people will live with much less. However, that economy is NOT reflected in the behaviour of either Wall Street or Washington where the spending and life styles are very much unchanged from prior to the great mass equity and credit wipeout.
Hence this dichotomy of our economy with an elite that is getting richer with every "QE" or other money from thin air program and the majority of the population which just worries on a daily basis how to pay the bills next month.
Wall Street and DC know their plans aren't working because their plans were never intended to reinstate the majority of Americans back to their previous income and wealth levels. Their plans have reflated the risk asset bubble which gives the illusion of wealth. At the same time Wall Street and DC are living off the high hog with money they've allowed to be created from thin air, with no backing. This money ensures them a very comfortable lifestyle in their version of an American Versailles.
They did not work for this money and they are not to be trusted with the issuance of currency and the control over the majority of American's natural given rights and talents. They need to be eliminated from the levers of power. Plain and simple. I don't know how to put it any more succint.
You are being reasonable and you are assuming you are dealing with a resonable situation, but you are really dealing with Bernie Maddoff. Lets assume that Maddoff's investors were all the food and tool producing corporations of the world and that they all depended on the money that they were receiving as dividend payments from the Ponzi scheme. If the Ponzi stops, the dividend payments stop and no coroporation in the world could keep on producing food and tools. What would happen? Got that? OK, the situation is 10^100 times worse if they stop the printing presses over the world.
Here is where our wealth is really coming from: "I lend you, you lend me, both our balance sheets increase, I lend you, you lend me and we all live happily!" and you keep on reapeating it untiil it's game over.
US owes Japan, Japan owes the US, Japan owes the EU, the EU owes Japan, US owes EU, the EU owes the US, and so on and so forth in a never ending carrousel of Ponzi money.
While the free cash flows are enough to pay the interests in all that debt, the debt is irrelevant since it will never be paid, but as soon as they start coming short, the Ponzi unravels. Is it a Ponzi?, is it modern finance? A physolophical discussion only. Since it is still a reality that if the free cash flow is not enough to cover interests the music stops.
Until next time,
Engineer
You said it E.....but not sure the music will stop when they don't have enough to cover interest payments...that already happened in 2008...we are now dead men walking....think of the analogy of the guy who falls between the subway wagon and the platform....the train leaves and then stops when they realise the guy is stuck there....then the guy gets first aid from attendants who know that as soon as they move him he is dead (despite appearances of being ok he is totally fucked up inside having been whipped around by the train).....that guy is us.......and any movement (end of QE, rise in interest rates) will result in our complete and utter extinction........whatever rises from the ashes will be a whole new animal that we cannot imagine.
moar cash for clunkers
moar real estate rebates
moar bailouts
moar bonuses
moar wars
moar
moar
moar
Is all of this being orchestrated? Or are they clueless? I can't decide.
the top layer is orchestrating, the second layer is clueless, the third layer is corrupt, the fourth layer...
...gets shat upon by the first three.
Fuck You Bernanke and your proxy bitches too
Setting up nicely for the Post Bernank Alpo Era!
B is a side show, so is Japan.....this is all about the derivatives market that nobody (unless you believe in secret cabals which may be possible) controls. How many hundreds (thousands?) of Trillions of $$$s are there floating around right now in this market? What happens when that hen comes home to roost?
B understands that there is only one possibility of getting out of this mess without a WWIII, and he is doing it. WWIII doesn't offer the elites any guarantees that they will come out on top. B knows that he is impoverishing the 99.9% of the US. But we are all irrelevant in the big game.
Until next time,
Engineer
B, Abe and Super Mario are like the stokers in the Titanic having a pissing competition just seconds before the berg crashes through the hull.......it is all irrelevant.
.....and not even a very entertaining sideshow.........
Haha,
Like a geezer getting his first Viagra prescription, his hopes for a little jumpstart soon turn to despair as he realizes without the help, he's just a limp dick.
Then the Viagra starts to not work anymore.
He blames his wife.
The machines love crappy news. The crappier, the better. If we get a depression tomorrow and the end of QE3, the market will rise remarkably well on its way to 66,000(DOW). You can't derail this puppy with real stats and charts. For all intents and purposes, they do not exist anymore. Today was just a flub by Benny who got confused as to what he meant to say. No worries, mate.
so very,very true T......forget the charts, stats and logic...this thing is on remote control and god knows who is sitting on the couch...........it sure aint B......
The S&P500 has returned an annualized rate of return of 12% due to fed easing over the past 4.25 years. Investors have become conditioned to making money from fed easing policy inititives. Bad news will remain good news for stocks until inflation (as measured by whatever way the fed sees fit) picks up or until quantitative easing no longer has a stimulative effect on the economy. The anticipation of stimulative effect probably has a duration of 18 months. In other words S&P500 1,900 bitchez!
And then what? S&P 190? Bitching!
For so long as they just fuck around with numbers the charade will continue. Accounting gimmicks are just fluff. Accounting gimmicks will make the "numbers" for a quarter or so, but ultimately thay FAIL.