Bursting The Permabullish Bubble: 11 Out Of 13 Economic Indicators Have Missed
Back in early 2011, even as the global economy was at best flatlining, the one goalseeked explanation to justify a levitating stock market (which was rising solely due to the short-term effect of transitory QE2 liquidity), was soaring corporate profitability (which only lasted as long as companies could trim some residual SG&A fat; they have now cut into the bone in terms of layoffs). This time around, with corporate margins having peaked, there had to be some other validation to explain away the "narrative" of the latest bout of central bank infused stock market levitation: it just happened that this time it was once again that old faithful, and always wrong, justification - decoupling. After all one just has to listen to 5 minutes of CNBC to hear it taken for granted that the US economy is doing oh so swimmingly. Here is a newsflash for all the permabulls out there. It isn't. Not only that, but as David Rosenberg highlights, 11 of the 13 most recent economic indicators have missed consensus expectations, and one can demonstrate that the other 2 - car sales and jobs - have been simplistically manipulated into a favorable outcome. So now that the market is turning over, with Europe and China both solidly into contractionary territory, with Corporate profit margins turning over, and with US data missing virtually every print, how long until the permabullish validations all go up in smoke, and the one true source of stock market "nirvana" - cheap money - is once again in high demand from the central planning cabal. In turn, the Chairsatans of the world will do as requested, as they always do, however not with crude (the real one - Brent, not that Cushing-buffered substitate) at $125, and with the risk that Israel may attack Iran any day now, with or without the blessing of the Fed's Class A director.
From David Rosenberg:
It is truly amazing how many people out there believe the economy is improving just because the S&P 500 managed to get to 1,400 this past week. The market doesn't always get it right.
But a look at the data flow suggests that beauty is in the eyes of the beholder.
Much emphasis is being put on the employment data. Outside of that, only auto sales really managed to surpass expectations regarding the U.S. data flow that has been released since the start of the month.
Meanwhile, personal income, consumer spending, ISM, net trade, NFIB, IBD/TIPP economic optimism, industrial production, NAHB, housing starts, University of Michigan consumer sentiment, and now, existing home sales, all came in below consensus estimates. So 11 indicators have missed, just 2 have beat, and supposedly we have some sort of nifty growth spurt going on. Incredible.
Speaking of the "auto sales recovery", we have previously demonstrated that this is purely on the back of yet another record month of channel stuffing by GM. Alas, just as the AOL coasters, pardon AOL OnLine activation CDs, channel stuffing always ends up in catastrophic failure. And this time around we doubt that the US population will have the stomach for yet another bailout of the insolvent automotive company whose crowning post reorganization moment has been the retraction of the Chevy Volt.
As for the other "beat" - jobs: why it is simply a case of applying the wrong seasonal adjustment factor to the months of one of the warmest winters on record.
The current edition of Maclean's runs with this on its front cover: The Year That Winter Died. This is the warmest winter in 65 years and with the least amount of snowfall as well. In fact, going back to 1960, I found a dozen times when it felt a bit like March in February. This past January was warmer than each of the prior two Februaries and four of the past five; January felt like February; February felt like March. And somehow nobody outside of us, the economists at my old shop at Merrill and NY Fed President Dudley have figured this out — how the data have been completely distorted by this weather pattern.
We estimate that if we had applied the February seasonal factor to this past January's raw payroll data, and if we had applied the March seasonal factor to the February data, both months would have shown a decline! Instead, the world buys into to the reported data that suggests that payrolls surged 511k in the first two months of 2012 (even better, the Household survey shows +1.28 million ... the best in 12 years!). Sure ... and the Leafs are making the playoffs.
The take home message here is that the redirection narratives (those displacing the true cause of the market ramp: CTRL+P) explaining the market rise have now been disproven. Which means that the magician behind the curtain is about to be exposed, and the only thing that can prevent that is for more printing to distract those who are more than happy to be distracted with yet another 5-10% rise in stocks on the back of nominal currency devaluation.
Because now that the permabullish bubble has popped, woe to the market unless the Consortium of Chairmen does not step right back in, and further 'expound' the already exponential chart of central bank balance sheets...