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The Market Says Markit Is Full Of It: Global PMIs Are Painting An Unrealistically Rosy Picture

Tyler Durden's picture




 

Markit (not to be confused with the centrally-planned market) is best known for providing its monthly survey of national (seasonally-adjusted) manufacturing and service industry coincident businesses (whose results just may be released milliseconds early to select, highly paying HFT clients). Surveys which, such as today, are released after extensive adjustments and revisions, at key inflection points designed to achieve one simple thing: restore confidence in the Ponzi, usually when "hard data" indicates a collapse or recession is nigh. Such as last week:

Case in point: in today's Chinese, European and US manufacturing, not one had underlying constituent data that could be called even remotely attractive. In fact, all the forward-looking indicators were decidedly negative and yet this led to solid headline beats in the two former regions after algos scanned the headline as quickly as they could and unleashed a spree of buying, enough to push equity futures well off the overnight lows and to set the bullish mood for today's trading day.

But why would one even look at a self-reported survey as an indicator of coincident activity: after all isn't it beyond obvious that every response will be full of confirmation bias and colored by the respondent's inherent optimism about the present and the future? Apparently not, and neither is it obvious that for all business participants, hope dies last, something which always influences their responses. The problem is that in a world in which central banks have made a mockery of all other coincident signals, one has to dig very low, although as even Deutsche Bank's Jim Reid says, "we've used this measure less over the last couple of years as central banks have increasingly distorted the relationship between fundamentals and valuation."

And as Jim Reid shows in the table below, the various regional PMIs have so consistently overshot in their expectations of where the manufacturing and service sector of a given country is throughout 2014, that not even the market believes, well, Markit. To wit:

Of our 8 sample countries plus the Eurozone, seven currently see manufacturing PMIs between 48.8 (France) and 51.7 (Japan). Depending on the country and based on these numbers, our regressions suggest that these  equity markets should generally be flat to slightly higher than 12 months ago. In actuality they're slightly lower suggesting that the market expects PMIs to edge lower or that equities are cheap if they don't. The biggest exception is in the US where the last PMI was 56.6 which corresponds to a 18% YoY gain rather than the 11% we actually have. So the US is 'cheap' if the PMIs don't decline from current levels.

In other words, with central planners having lost control of the hard data, and only the soft-data remaining for influencing, bias and data manipulation purposes, it has gotten to the point that Markit's PMI universe is about to lose credibility too.

Just how bad is the problem? The table below shows two things: either stocks are underpriced by about 10% across the US, Germany, Spain, UK and 20% for Japan (green rectangle), or the latest PMI releases are painting such an abnormally rosy picture of various economies, their signal content no longer exists (red rectangle).

There is, however, more to it: in all of the Markit economist comments today, the one recurring theme was simple - Markit, which recently went public, was begging central bankers to inject even more stimulus (6 years after the great stimulus experiment started) into stocks, pardon, the economy. And yet, Markit was unable to really take down its numbers at this key moment in the hand off from the Fed to the "self-sustaining economy" as a series of PMI misses overnight would have crashed the market. Instead, Markit is letting off air little by little, while doing all it can to preserve the illusion.

The question is will it succeed: will central bankers get the hint and inject a few more trillion in reserves into bank balance sheets, or will they stay largely to the side, forcing the market to fend for itself. If so, watch as the 10% expected pick up in stock performance through the end of the year surges as the QEvalary never comes. In that case, Markit will find itself in a very unpleasant place, when 2-3 months from now, risk selling off, it has to finally catch down to reality.

Will the dramatic tumble in PMI indices then serve as precisely the self-fulfilling prophecy catalyst that sends the world, of which both Japan and Europe are already in a triple-dip, but most importantly the US, in the long-overdue recession which as Albert Edwards opined earlier today, will be the one event that sends markets around the globe crashing.

We should know the answer within a few months.

 

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Thu, 10/23/2014 - 14:06 | 5368218 ebworthen
ebworthen's picture

"...their signal content no longer exists..."

Yup.  And the red rectangle informs them of the fudge factor needed in the next signal.

Thu, 10/23/2014 - 14:40 | 5368349 SAT 800
SAT 800's picture

+4500$ on my 3XZBM5 contracts. short the June '15 Bond anomaly that I reported here yesterday. I like to shoot first and ask questions later. We can fill out the paperwork after we take out the corpses. To me the great up lift in the June contract looked like someons else's misery, so naturally i shorted it; as I reported here. I'm sure the few people who bother to read my posts about my positions I take, that I post here in real time, thought I was crazy. I'm used to it. Now I have a zero loss stop order in; so what do I have to worry about? Either I lose nothing or I make a lot; there are no other outcomes. The stock market ? you work too lhard and you don't get paid enough. I get paid every year for farting around in my spare time; up years, down years, whatever.

Thu, 10/23/2014 - 16:24 | 5368876 disabledvet
disabledvet's picture

Gotta big ol gun

Gotta a big ol gun/gotta real big

Bullet

And I guess you could say

I guess you could say...

I'm really....

Thu, 10/23/2014 - 14:07 | 5368227 DavidPierre
DavidPierre's picture
Top Secrets of Gold - Full Documentary

http://www.youtube.com/watch?v=ksPXgtOV4KQ#t=2417

Thu, 10/23/2014 - 14:08 | 5368232 madbraz
madbraz's picture

PMI = Ponzi Manipulation Index

Thu, 10/23/2014 - 14:11 | 5368237 Kaiser Sousa
Kaiser Sousa's picture

nothing matters anymore...
the markets are fraudulent to the core...
here we r and they want u to believe that the TRUE VALUE of Silver is $17??? and the fucking Dow up 274 points after down 155 yesterday and almost 1000 the week b4?????

yeah, and I'm Rodney Allen Rippey....

DEATH TO THE MONEYCHANGERS.

Thu, 10/23/2014 - 14:39 | 5368345 Colonel Klink
Colonel Klink's picture

Nice to meet you Rodney, what is this "market" you speak of?  I believe rigged casino is the correct term.

Thu, 10/23/2014 - 14:43 | 5368358 SAT 800
SAT 800's picture

How can it be rigged when it goes up and down? study it. It's not exactly "rigged"; but it's always a question of whose Ox is being gored; and a question of identifying which interest has the upper hand.

Thu, 10/23/2014 - 14:47 | 5368376 Colonel Klink
Colonel Klink's picture

Rigged = Fed intervention

Thu, 10/23/2014 - 14:52 | 5368405 Ban KKiller
Ban KKiller's picture

..insider trading, false ratings, cooked books...what the Fuck do you mean not rigged? Are you bank stooge Mr 800?

Thu, 10/23/2014 - 14:56 | 5368421 Kaiser Sousa
Kaiser Sousa's picture

no...he's just on some really realy good ass weed...

Thu, 10/23/2014 - 14:57 | 5368426 Colonel Klink
Colonel Klink's picture

While technically not illegal, you forgot stock buybacks!  Which also distorts true price discovery and rigs the numbers.

Thu, 10/23/2014 - 15:59 | 5368752 SAT 800
SAT 800's picture

No,no. I didn't "forget stock buybacks". any information of that kind is very usful it helps to figure out what's going on. I think this is mostly a semantic problem. I never thought the stock market was anything but a carnival cruise ship for fools; as long as you can figure out who is going to profit next and how; you can buy and sell the futures contracts. So; I don't "see" it as "rigged"; it kinda looks normal to me. Fucked up, yeah; but normal. I mean, I'm used to fucked up; I'm a futures trader !!

Thu, 10/23/2014 - 15:55 | 5368730 SAT 800
SAT 800's picture

Maybe; bank intervention for sure. to me rigged would mean a one way market. it's not crash proof, or even a one way market; of course somebody is going to try to take advantage of the frigging thing, that's what it's there for as far as they're concerned. I doubt very much that the Federal Reserve issues buy orders in the stock maket, directly or in-directly.

Thu, 10/23/2014 - 16:00 | 5368366 SAT 800
SAT 800's picture

Are you not free to believe what you wish? why complain about a market? If it's undervalued buy it; don't whine about it. And this post refers to the person whinning about the silver price. in case that's confusing.

Thu, 10/23/2014 - 14:11 | 5368240 JenkinsLane
JenkinsLane's picture

But "all-time highs" for the mid-terms baby!

Thu, 10/23/2014 - 14:34 | 5368323 Jahbulon
Jahbulon's picture

That seems to be what this is all about.

Thu, 10/23/2014 - 15:39 | 5368636 John Law Lives
John Law Lives's picture

If you were the POTUS and you wanted to radically transform the nation, would your plan look something like this:

1. Be complicit with extremely dovish Central Bank policy in the hopes that the value of equities and homes would surge higher (and in the process making shareholders and homeowners wealthier and thus pacifying them).

2. Be complicit with corporations slashing jobs and outsourcing jobs and repurchasing shares to help push equity markets higher (and in the process making shareholders wealthier and thus pacifying them).

3. Be pro-immigration to curry favor with immigrants (Latinos in particular - which are a rapidly growing demographic who often appear to vote Democrat) and curry favor with corporations who want (a) a bigger pool of cheap labor and (b) more consumers (and in the process pleasing certain immigrants and corporations and thus pacifying them).

4. Promote universal health care (to the extent possible) in the hopes of benefitting those who can not afford insurance (and in the process pacifying both those who can not afford insurance and big insurance companies who seem to be benefiting handsomely from Obamacare).

5. Fully support government aid in its many stripes (and in the process pacifying the large Free Stuff Army).

6. Once you have pacified enough people so they will not oppose you, go about your business of making fundamental changes to the nation.  Once the current POTUS leaves office, who knows how drastically different it will have been transformed.

Pretty devious business... and many in the MSM love the POTUS... every step of the way.

Thu, 10/23/2014 - 14:12 | 5368241 wswarrior
wswarrior's picture

Another ramp and park day today, truly unbelievable the lack of volatility on up days.

Thu, 10/23/2014 - 14:29 | 5368303 deeply indebted
deeply indebted's picture

Mark it ZERO!

Thu, 10/23/2014 - 14:37 | 5368332 Oxygen
Oxygen's picture

Crash next week?

Thu, 10/23/2014 - 14:40 | 5368346 Bryan
Bryan's picture

No crashes allowed until after the Dems have secured their positions of power.  Then the market can do whatever it wants.

Thu, 10/23/2014 - 14:39 | 5368339 Colonel Klink
Colonel Klink's picture

There's a "rosy" picture but it's not going to finish with a happy ending.

Thu, 10/23/2014 - 14:56 | 5368416 AdvancingTime
AdvancingTime's picture

The euro-zone is in a far bigger mess than recent headlines and figures suggest. Most of the growth in the Euro-zone over recent years has been in Germany and that bright spot is now under pressure. Italy has been in recession for two years; France’s economy has been stagnant for months.

Now that Germany is in trouble, many economist think the chances of a Japan-style deflationary spiral have risen sharply. What it all boils down to is Germany can’t keep buying Greek bonds and other bad debt with German taxpayer money until the end of time. The article below looks at the corner Central banks have painted economies into by attempting to paper over reality and how these polices will hinders growth for as long as the eye can see.

 http://brucewilds.blogspot.com/2014/10/global-economic-malaise-due-to-debt.html


Do NOT follow this link or you will be banned from the site!