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Is This Where The US Recession Is Hiding?

Tyler Durden's picture




 

On the surface, US industrial production - the most important component of any manufacturing recovery, or alternatively recession - is solid. In August, Industrial Production surged by 0.6% which was the biggest sequential increase since November. Of course, as we have shown, the only reason industrial production is strong is because of subprime debt-funded auto purchases which have sent new motor vehicle production soaring in recent months, but as long as the recovery narrative is intact, what's another "little" auto subprime bubble: surely the Fed can make it disappear in "15 minutes."

On the other hand, there is a huge flashing red light when looking at the entire industrial lifecycle of US manufactured products: while production is brisk, end demand in the form of completed sales, is crashing.

And this is where the alarm buzzer for the US economy goes off, because while industrial production does suggest the recovery is stable, the ratio of US inventory to sales has tumbled to levels indicative of recession, which also means that while US factories are humming, their output is accumulating in warehouses, overflowing parking lots and storage facilities.

So to answer the question: yes, the US recession is hiding just under the "question mark" at the unexplained and perplexing divergence between industrial production, and actual end sales...

.... all of which result in a record inventory stockpiling which as we showed before, is what recently boosted Q2 GDP to an unsustainable 3.7% growth rate.

What happens when the inventory liquidation finally arrives as end demand fails to materialize? One word: recession.

And just to preempt the next question: how much longer can the can be kicked, here is Bank of America's explanation:

During the past four US manufacturing recessions (ex-GFC), global EPS has declined by 16% on average peak-to-trough. Since current EPS is already down 8.5% since mid-2014, this suggests another 8-9% downside in this worst-case scenario.

With China's help, we are almost there.

 

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Thu, 09/03/2015 - 17:12 | 6506302 LawsofPhysics
LawsofPhysics's picture

If you build it, they will come?

Thu, 09/03/2015 - 17:15 | 6506319 zaphod42
zaphod42's picture

The customers are coming... the consumers are coming... the buyers are coming?  Will they buy anything?  Do they even have money? Or, this being America, Credit? 

 

OOOhhh look... the Creditors are coming!! 

 

Enjoy.

Thu, 09/03/2015 - 18:19 | 6506612 KnuckleDragger-X
KnuckleDragger-X's picture

Pent up demand as far as the eye can see......

Thu, 09/03/2015 - 19:57 | 6506964 El Oregonian
El Oregonian's picture

They make great fill for 10' barricade walls for the next real-life sequel of "Escape from LA".

Thu, 09/03/2015 - 17:15 | 6506320 negative rates
negative rates's picture

And if you don't "build" it, they won't "come", naturally.

Thu, 09/03/2015 - 18:29 | 6506658 johngaltfla
johngaltfla's picture

And the deep, dark, dirty secret? Vehicles, items, planes, weapons, etc. sold to the government but stored at the originating company's OR alternative private storage location are not COUNTED as governemnt inventory but PRIVATE inventory. Since this was a pre-Q1 Fiscal 2016 report, I'm wagering a lot of this "private" inventory is crap destined to the DoD and other government agencies wihte delivery being delayed to juice the numbers.

Betcha the BEA never admits that.

Thu, 09/03/2015 - 19:57 | 6506967 TheReplacement
TheReplacement's picture

If you build the right it, yes.

Take sex robots for example....

Thu, 09/03/2015 - 17:22 | 6506321 Ham-bone
Ham-bone's picture

Japanese and German population declines are not aberrations...they are the trend setters in a secular declining growth rate globally and likely move toward outright global population declines.

 

http://econimica.blogspot.com/2015/09/secular-sea-change-depopulation-viewed.html

read this...tell me why I'm right, wrong, full of shit...whatever, but this is by far the most important thing I've written.

Thu, 09/03/2015 - 17:16 | 6506329 buzzsaw99
buzzsaw99's picture

draghi will buy them, he'll buy anything.

Thu, 09/03/2015 - 17:23 | 6506357 I AM SULLY
I AM SULLY's picture

Draghi is a cocaine hero.

Thu, 09/03/2015 - 17:37 | 6506409 The Old Man
The Old Man's picture

Desperate measures for desperate times! LOL!!!!

Thu, 09/03/2015 - 17:20 | 6506333 Tsar Pointless
Tsar Pointless's picture

Let's be frank (or whoever you want to be): The USofA never recovered from the Great Depression. If you look at the chart of the FRN, especially from 1929 to the present, this is clear as day.

http://www.whatamimissinghere.com/archives/26993/value-of-a-federal-rese...

Thu, 09/03/2015 - 17:50 | 6506479 kchrisc
kchrisc's picture

That chart could be labeled the Zion Plunder Index.

Zion is a scheme, not an ethnicity.

Thu, 09/03/2015 - 17:20 | 6506337 order66
order66's picture

QE4 will simply involve buying up warehouse inventory and SALBS (sub prime auto loan backed securities). Pretty sure Goldman has a few quants structuring those as we speak. Heard Norway is interested.

Thu, 09/03/2015 - 17:36 | 6506406 The Old Man
The Old Man's picture

You guys are just too funny! Now I gotta change my Depends!

Thu, 09/03/2015 - 17:20 | 6506339 q99x2
q99x2's picture

Even the Lamborghinis are piling up at the end of my street. I know they want me to buy one but I'm keeping my 1992 Toyota Corolla forever and buying a yacht at the bottom of the crash; plans for an ultra-light too.

Thu, 09/03/2015 - 17:32 | 6506398 The Old Man
The Old Man's picture

I just pissed myself LMFAO!

Thu, 09/03/2015 - 17:26 | 6506367 kevinearick
kevinearick's picture

tsarina Grace Alexandra Earick; Aug 17; Oh God, another Leo.

Thu, 09/03/2015 - 17:32 | 6506397 kevinearick
kevinearick's picture

oil $45, check, Nasdaq 5000, check, unfunded liabilities $250T, check, Cad, check, check, check...

Thu, 09/03/2015 - 17:28 | 6506375 The Old Man
The Old Man's picture

And the jobs number is up and the FED is wringing their hands about a rate increase. Sure, increase it.

"Those Idiots!",  may do just that. What the fuck else could the FED possibly do to F up the economy?

Interests rates rise for small business. What's left of small business! Just what the doctor ordered!!!!

I'm kinda thinkin that maybe we really don't need economists. Maybe BOZO the Clown or Howdy Doody would do just as well if not better. And BOZO! You owe me advertizing share!

If the economy is showing growth (even a smidgen) then let the thing be for the love of Christ. Stop F'ing with it.

Fuck the bankers. They already made enough money.

A BITTER Old Man!

 

Thu, 09/03/2015 - 18:12 | 6506579 BullyBearish
BullyBearish's picture

The jobs number will be good, the rate will increase this month because it has to...all according to plan.  Don't be fooled about the "one-and-done" BS spewing forth...it will look much more like it did in the mid-2000s:

December 13, 2005: 6:12 PM EST
By Paul R. La Monica, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) - The Federal Reserve raised the target for a key short-term interest rate Tuesday by a quarter of a percentage point. The rate hike was widely expected by investors and economists, as the economy continues to show signs of strength.

But the central bank also modified its closely watched policy statement, a move that many analysts believe is a sign that the Fed may finally be nearing an end to its campaign of boosting interest rates. Markets reacted positively to the news, but some cautioned that despite the change to the statement, the Fed may still need to raise rates several more times.

The Fed did keep the term "measured," a word it has used to describe its approach to monetary policy since its May 2004 meeting. But it got rid of the phrase "policy accommodation can be removed," language that Fed watchers have typically interpreted to mean that many more rate hikes were on the way.

Instead, the Fed said that "some further measured policy firming is likely to be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance" and added that "the Committee will respond to changes in economic prospects as needed to foster these objectives."

The Fed has increased rates by a quarter of a point at its past 13 meetings, dating back to June 2004. The federal funds rate now stands at 4.25 percent, its highest level since March 2001. Banks use the federal funds rate to determine overnight lending rates, which affect how much consumers and businesses pay for various types of loans.

Hope had been building in the financial markets before Tuesday's meeting that the Fed would pause soon, since interest rates are approaching a so-called neutral level, a level that is supposed to keep the economy growing at a healthy pace without spurring a harmful pickup in inflation.

"I think there will be another quarter point hike or two. This is paving a way for a pause at some point early next year," said Tom Higgins, chief economist with Payden & Rygel, a money management firm based in Los Angeles. "This tightening cycle is long in the tooth."

To that end stocks, which were mixed before the announcement, moved higher following the Fed's decision. Bonds were trading slightly higher, pushing the yield on the 10-year Treasury note to 4.53 percent. (Bond prices and yields move in opposite directions.)

Will Ben keep hiking?

Tuesday's meeting is the second to last for Federal Reserve chairman Alan Greenspan, whose term ends in January. Ben Bernanke, a former Fed governor, will take over for Greenspan, and his first policy meeting as Fed chair will take place on March 28.

But one economist said that the market should not assume that Bernanke will pause at his first meeting, even with the change in the Fed's language.

"The stock market may be overreacting to the Fed's statement," said Michael Strauss, chief economist for Commonfund, a money management firm based in Wilton, Conn. "The Fed may go a little further. Rates are approaching neutrality, but the Fed recognized the vibrancy of the economy. It doesn't look like the Fed is done."

As such, the Fed indicated that inflation was something it was still keeping a close eye on but added that "core inflation has stayed relatively low in recent months, and longer-term inflation expectations remain contained." The Fed used the same language to describe inflation in its last statement in November.

The Fed also said that higher energy prices this year and the effects of Hurricanes Katrina, Rita and Wilma did not appear to be having a major negative impact on economic growth. "Despite elevated energy prices and hurricane-related disruptions, the expansion in economic activity appears solid," the Fed said.

Ethan Harris, chief U.S. economist with Lehman Brothers, said that the Fed probably has room to raise interest rates a few more times, since the economy has shown no significant signs of weakening despite some obstacles.

"It's a Reggie Bush economy, running around and leaping over all problems," said Harris, referring to the Heisman Trophy-winning USC running back known for his uncanny ability to escape would-be tacklers.

Harris added that it's worth noting that the Fed still kept "measured" in the statement. He believes this word might be removed when the Fed meets in January but said that even if that is the case, the market should really pay more attention to what the Fed does, not what it says.

"This is a baby step toward pausing," said Harris. "But the Fed keeps hiking. These are language changes. It's all talk. The action is quite clear. They are still hiking."

So how high could the Fed wind up going before it stops raising rates? Vincent Boberski, chief fixed income strategist with RBC Dain Rauscher, said that he expects the Fed to raise rates again in January and at Bernanke's first two meetings in March and May.

"The Fed is closing in on neutral but has further to go. Five percent is a reasonable level," said Boberski. "We'll get two hikes from Bernanke before pausing, and he'll want to get there pretty quickly."

Barry Ritholtz, chief market strategist with Maxim Group, a New York-based institutional firm, also said he believes the Fed will probably raise rates at its next three meetings, but that if the economy is still humming along at a robust pace, it could keep raising rates even after that. The reason? The Fed said clearly that it's still worried about inflation.

"It's not one and done, two and we're through or three and we'll see," said Ritholtz. "There is inflation in the system and the worst thing a central banker can do is let inflation get out of hand. So if you look at the fed funds rate and what neutral is supposed to be, 5 to 5.5 percent is not unthinkable."

 

Thu, 09/03/2015 - 18:54 | 6506774 The Old Man
The Old Man's picture

So same old same old. I get your point without all the verbiage. I lived through it!

Thu, 09/03/2015 - 17:49 | 6506470 cdude
cdude's picture

More fuel for the deflation engine

Thu, 09/03/2015 - 17:54 | 6506492 Falling Down
Falling Down's picture

Gee, when was the last time we saw a similar trend?

Spring and into the Summer of '08. Except now it is slightly different, rock bottom interest rates have kept the auto industry up at full retard.

What 'event' is gonna pop this one? Time will tell.

Thu, 09/03/2015 - 18:23 | 6506631 PrimalScream
PrimalScream's picture

ANSWER - Layoffs.

People have taken long-term auto loans.  They can't be paid when folks have no jobs.

Thu, 09/03/2015 - 18:08 | 6506565 spanish inquisition
spanish inquisition's picture

I am guessing that you can find half the value of the US is listed under the goodwill account in some obscure Fed report.

Accounting problem solved.

Thu, 09/03/2015 - 18:51 | 6506758 starman
starman's picture

wait till thanksgiving  when the sheep goes shopping with their tents! 

Thu, 09/03/2015 - 18:54 | 6506773 goldhedge
goldhedge's picture

GHOST AUTOs

 

Thu, 09/03/2015 - 19:41 | 6506915 Gab Timov
Gab Timov's picture

if only my rent wasn't too damn high, i could go out there and stimmalate the economy more.

Thu, 09/03/2015 - 20:59 | 6507158 newnormaleconomics
newnormaleconomics's picture

If you want cheaper rent, and you have a car, live in your car. Seriously. The car payment is a lot less than rent (or the cost of insurance, registration, gasoline, and maintenance, if you don't owe on the car).

You can shower at an LA Fitness for $30/month.

You can eat fresh, healthy food at most grocers while avoiding fast food. 

Make a commitment to be fit and avoid "health" insurance and care like the bloody, bleeping plague. 

Find a friend who has wifi and connect a signal booster at his house, ask for his account's password in confidence, get a car adaptor to charge and power your laptop, and f#&k the landlords, bankster mortgage ("dead pledge") lenders, and the gov't as gaurantor of mortgage principal and interest for investors. 

If you're going to be a landless peasant/serf in any case, be one on your own terms, not to conform to the desires of gov't, banksters, or some still-wet, overused squeezebox's dictates on how many orgasms you get to have in her presense. It ain't worth it, brothers. 

Thu, 09/03/2015 - 20:40 | 6507078 newnormaleconomics
newnormaleconomics's picture

http://www.washingtonpost.com/news/energy-environment/wp/2015/09/03/rese...

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1KRj

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1L4A

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1L4D

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1L4F

Since the 1970s-90s, we have had a slower rate of increase of "prey", the masses, because of Limits to Growth, which has decreased the share of rentier-parasite "predators", which in turn has concentrated the share of resources, production, income, wealth, and political power to fewer "predators"; by definition, this implies fewer resources per capita for the "prey" hereafter, and a dramatic collapse in the number of "prey". 

https://www.youtube.com/watch?v=QfYCrLq1DJU

In effect, the "predators" have an overwhelming surplus of "prey" and no longer need the vast majority to sustain their standard of material consumption and living standard on a finite planet. 

Therefore, the vast majority of the "prey" will be eliminated over time because there simply is not enough resources per capita left over after supporting the infrastructure and hierarchy of net upward flows to the "predator" top 0.001-1% and the next 9% beneficiaries.

So, unless you have a secure income of $150,000-$350,000 and more and a secure net wealth of $1.5M-$3.5M and higher, you are one of the "prey" who is surplus on this finite, spherical planet.

So, what are you going to do about it? 

 

Thu, 09/03/2015 - 20:46 | 6507110 newnormaleconomics
newnormaleconomics's picture

Inflation? Inflation? I'll give you some inflation right here: 

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1sae

Rising interest rates? You want some rising interest rates? I'll give you some rising interest rates right here: 

http://www.hoisingtonmgt.com/pdf/HIM2015Q2np.pdf

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1sae

Don't say you weren't informed. 

 

Fri, 09/04/2015 - 06:05 | 6508101 wounded sparrow
wounded sparrow's picture

Smile sheet

Thu, 09/03/2015 - 21:14 | 6507230 bid the soldier...
bid the soldiers shoot's picture

Remember the inventory recession of 74 - 75?  Cut the Dow in half. Took a head and shoulders bottom to end it.  None of those phony QE 'vee' shapes like 2009- 10.   

In a few years no one will remember what a real market was like.

Like typewriters.

Thu, 09/03/2015 - 21:17 | 6507244 hedgeless_horseman
hedgeless_horseman's picture

 

 

...those phony QE 'vee' shapes

I see so many that I am worried I might start to think they are normal.

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