While today's GDP revision was largely formulaic and served mostly to generate another algo momentum ignition buy program pushing the DJIA to a new all-time intraday high, there was some much better news hidden deep in the revision. We are delighted to advise Americans everywhere that you are all now making some $300 billion more than you were before the 8:30 AM revision. At least that's what the Bureau of Economic Analysis says: according to the quarterly revision, the revized annualized Disposable Personal Income is really some $300 billion higher compared to the pre-revision number. You are all richer!
It seems 'someone' doesn't want the world knowing just how much of a 'long shot' Larry Summers is for the great-and-powerful-Oz position of Chairman of the Federal Reserve. As we showed just last week, PaddyPower showed Yellen as a strong 77% probability favorite with Summers lagging notably behind in the pack. Then comes this morning's comment from the second most powerful man in the world:
- *OBAMA SAYS LARRY SUMMERS BEING UNFAIRLY CRITICIZED: SHERMAN
- *REID SAYS SUMMERS IS A FRIEND, A `COMPETENT' MAN
And Goldman's Jan Hatzius' warnings that Summers is less 'enthusiastic' on using monetary policy than his competitor Yellen. And now - as the image below shows - PaddyPower has removed its betting on the next Fed head. We just wonder who got the tap on the shoulder?
With a number of banks cutting their mortgage departments (Wells Fargo JV and Everbank most recently), it seems the 'weakness' in the housing recovery may be more than transitory. For the 11th week of the last 12, mortgage applications fell for the fastest three-month collapse since June 2009. Mortgage activity is now its lowest in two years with refinancing activity down 57% from its recent peak and new purchases have dropped to their lows of the year (down 13% from the highs) and stand exactly at three-year average levels.
It just keeps going form bad to worse for William Ackman. The so-called retail expert tried to diffuse the situation today by announcing a massive $2 billion position in Airgas, only for Herbalife to go right back front and center, following news moments ago from CNBC that none other than George Soros has taken a long stake in Herbalife, and not just any stake but a "top 3" position. We haven't done the math but the float out there must be getting dangerously low for Ackman: low enough to where the Volkswagen scenario we predicted in early January (just as we predicted the imminent epic short squeeze) may finally come in play as there is not enough float to cover Ackman's short, and certainly not when the longs decide to pull all the borrow. If and when the Ackman margin calls hit, we hope that Soros will accept shares of Airgas as deliverable. In the meantime, the stock is up 173% since December, or when we said to go long following Whitney Tilson's "short."
Curious how the comprehensive revision of GDP looks like? Here's how: following the "revised data", Q1 GDP in nominal terms stood at $16.535 trillion. Previously, it was $15.984 trillion. And that is how you add $550 billion in "growth." More importantly, here is the full breakdown of GDP on a quarterly basis: of note - Q1 2011 GDP growth was revised from +0.1% to -1.3%: close call with recession there.
One of the unpleasant side-effects for the Fed's forecasting (insert laughter here) abilities, is that following today's GDP revisions, H1 annualized GDP is now 1.4%. It means that there is no way that the economy can grow fast enough in the second half (especially with such early disappointments to the second half as the just released Chicago PMI miss) to meet the Fed's forecast growth of 2.3%-2.6%. Which, in turn, means more egg on the face of Bernanke and the FOMC's 2013 forecasts. Which is precisely what Goldman just said.
So much for that "priced in" strong start to the second half. All those expecting a major move higher in the Chicago PMI after its June plunge from 58.7 to 51.6 will have to defer their hopes for one more month, following the headline print of 52.3, which missed expectations of 54.0. However, the headline number doesn't do the PMI full justice, because while the growth was driven by all the wrong reasons, namely margin crushing Prices Paid surging from 59.9 to 63.3 - the largest two month jump since 2010 - the much more important trifecta of New Orders (54.6 to 53.9), Production (57.0 to 53.6) and Employment (57.8 to 56.6) all dropped. What this means for the ISM is not exactly clear due to the long-running tradition of baffle with BS, but on the surface it is hardly optimistic... which likely means ISM will explode higher.
Think the pick up in Q2 GDP was due to the desired increase in end consumption? Think again. Following the full data revision, Personal Consumption as a component of GDP dropped from 1.54% in Q1 to 1.22% in Q2, offset however by an increase in fixed investment which rose from -0.23% to 0.93%. In fact, aside for Q3 and Q4 of last year, Personal consumption in the just completed quarter was the lowest goin back to Q2 2011 when PCE was 1.03%.
UPDATE: Markets are reacting in a very 'Taper-On' way with Gold down, bond yields surging, and the USD rising (with stocks leaking lower)
The Q2 GDP printed at 1.7% compared to expectations of 1.0%, however this was entirely offset with the Q1 revision from 1.8% to 1.1%. Since the series is being entirely revised, it is safe to say that these are Apples to Oranges numbers. Q1 was revised to the worst miss in 27 months...
While the ADP jobs number is noise, it is no more noise than the BLS' NFP monthly print. And since the NFP jobs number has been targeting the 200K support level for all of 2013, with the 6 month average at precisely the taper-permissive 201K, it was natural that the Mark Zandi-supervised ADP would ultimately revise its data to substantiate the BLS message, which is simple: taper on. Sure enough, ADP beat expectations of 180K coming at 200K, while the previous number of 188K was revised to 198K.
In a few minutes, the BEA will revise US GDP figures going back nearly one century, for one simple reason: the economists in charge will do all they can to reconcile the observed drift between GDP and unemployment in stark refutation of Okun's Law, which we have previously disclosed, and which if left unattended will continue crushing the credibility of said economists. Since all it will take are some number additions to "generate" growth, the result is predictable. But what specifically are the upcoming changes to the various accounts and components? Bloomberg's Joseph Brusuelas explains.
Today's broad "rewriting of history" GDP revision is set to "boost" US GDP by about 3% cumulatively (or about the size of Belgium's economy) and shave off 1-2% from US GDP. That's great. For the sake of the world, however, we hope that the rest of the developed (and less than developed) world's countries promptly follow in America's footsteps and fudge their own numbers post haste because things are rapidly getting out of hand, as the following chart conveniently reminds. Nowhere is this more so than in Japan, where as has been the case now for almost a year, Goldman Sachs, the central bank and local government (in order of decisionmaking importance) have all doubled down on their "all in" bet that the only thing that fixes recorder debt is moar recordest debt.
- Ackman Says Pershing Square Takes 9.8% Stake in Air Products (BBG) - So is APD Carl Icahn's biggest ever short yet
- Latest Hilsenplant: Summers Hedges His Doubts on Fed's Bond Buying (WSJ)
- China Stocks World’s Worst Losing $748 Billion on Slump (BBG)
- U.S. Spy Program Lifts Veil in Court (WSJ)
- Abenomics on the rock again: Japan July manufacturing PMI shows growth at 4-month low (Reuters)
- EADS to be renamed Airbus in shake-up (FT)
- Goldman's GSAM has significantly increased its exposure to European equities (FT) - there is a reason why this is Goldman's worst division
- Japanese Megabanks Post Mega Profit Gains (WSJ) - when one excludes MTM impact from rate surge of course
- Ex-workers sue Apple, seek overtime for daily bag searches (Reuters)
- Hong Kong Yuan Deposits Snap Eight-Month Increase on Cash Crunch (BBG)
- Downtown NYC Landlords Remake Offices in Shift From Banks (BBG)