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The Unbearable Lightness Of The Stock Rally
Having spent much of the day attempting to explain the difference between nominal and real wealth creation and that asset price movements are different to the economy, we turn back to Michael Cembalest of JP Morgan to set the story straight on one of the most frequently cited reasons for the rally: "It's the economy, stupid". Many argue that the US economic expansion is the real driver behind this most recent USD-based equity performance. It is also hard to disagree that there are positive signs, but as the JPM CIO opines, let's be realistic: US growth is projected to be ~2.5% for 2012. That's better than last year's 1.7% disappointment, though both remain well below the 'trend' 3% growth that lost George HW Bush the 1992 election. Some argue that profits are the driver, and they are doing well, but their apparent strength (that still managed to relapse in 2010 and 2011) is masked by a sad truth that gets little exposure.
Looking at where those profits come from shows that if labor compensation grew at trends comparable to prior recoveries, a big chunk of current-cycle profits would disappear (quicker than a rehypothecated 2Y BTP under Corzine's watch).
Cembalest summarizes that while this doesn't mean these profits are entirely illusory; it does mean that they come with related costs: such as weak household income and bloated government budget deficits - which have a cost as well (don't they?).
Some argue that European growth surprised positively in Q4, but the surprises were confined to France and Germany. The periphery is in recession and expected to remain that way, and the Netherlands had a small decline as well.
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Let’s play!
Let free the Tyler Durden in you!
Tomorrow(02/24) everyone tweets ‘’Greece Defaults’’ on twitter at exactly 10:03 (ET).
It’s time to see how bad the Algos will react to this storm of tweets.
Respond to this message saying you are IN!
That would actually be an interesting experiment.
Of course, I do believe that causing so much as a 10 point downtick in this market is sufficient cause to have you deemed an "enemy combatant" at which point you will either notice a drone diving towards your residence or you will be provided with an involuntarily Caribbean vacation to GITMO for an enhanced Q&A session.
But nonetheless...an interesting experiment.
Borrow a friend, neighbor, or family members 'Ghetto Visa' (ebt card) and when someone from an alphabet agency shows up at your door make sure it falls out of your wallet. Also, play a soundtrack of a kid crying in the background (in another room) and leave a bedpan with lemonade on a counter in plain sight.
They'll immediately know that you probably have a geriatric family member and a kid they will have to find a home for the night for, which means waaaay too much paperwork. Also, the Ghetto Visa tells them that you're just another sheeple and was probably just following the herd on the latest Twitter fad.
Oh, and it might help to have your phone out recording the occifer so you can tell them you want to show it to all your friends on FB about how cool they look. Maybe even ask them if they know when the elections are cause you want to vote again and keep Obummer keeping you fed.
Who knows, it might keep you out of a 5 x 8 or that new penal colony formerly known as Greece.
Tyler needs a Twitter Botnet
http://ddos.arbornetworks.com/2009/08/twitter-based-botnet-command-channel/
I don't understand what type of reaction you expect from Greece Defaults...it has already defaulted!
You should hit up 4chan and Reddit. Make it happen.
It may be the T in EBITDA that eventually bites hard.
Yeah but can you imagine how profitable corporations will be when American workers get "Greeked" and have to work for free?
I think it would take Efram Cembalest junior of the FBI to figire this one out.
ANYONE WHO USES 'BEA FIGURES' IS AN IDIOT..
ALX
Profits? You mean Lowered-To-Beat profit expectations?
This "rally" is as fake as all the bloody numbers they slosh around since 2007 and even before that !!! Algos playing ping pong ain't a market, it's a joke and a dangerous one too!
One of these days.....
It's a setup!
OK, so there are some figures coming in better than had been prior over the last month or two oo three. Not that they're anything to write home about, or even pay much real attention to, but the press and permabulls have latched onto them.
And measures of sentiment have improved. Just have.
And stocks (God, please expalin why... it makes no sense...) keep on extending the gains... plus even the proverbial late to the dance floor are starting to plie on.
The news folks are pusing hard as can be....
A real all out effort to make it look as good as could be.
So, what's the setup?
The moment that the data, sentiment turn a bit south, watch Goldilocks, JP, et al, start on again about the Fed, just has to, really can be the only savior, must do more, setup for the next Formal Round of QEwhateverthefuck
I can smell it coming a mile away.
If you look into labor compensation. Cost cutting can be coming from cutting down headcounts. If you look the companies annual report. You will find their COGS increase and lower gross margin due to higher cost. Conclusion, the increase in company profit is not due to lower labor compensation but rather strong spending power.
What gets me are some stats like online sales for momo bait like Skull Candy. The company supposedly swung to profit on the back of online sales, up 75%. Even though direct online sales was never a big part of the business. Do you really go to a headphone company's website to order $20 earbuds?
I know for a fact Skull Candy sales in major retail took a dive during the holiday season. Displays haven't been restocked because the demand is not there. EDI systems show less than 6% weekly sellthrough.
I have a real hard time reconciling the hard numbers I am privledged to have access to, to the reported sales of these corporations. The sales are not there to support the data. Somehow the profit ends up on the books without the products actually being sold.
The accountants at these corps should go be chefs. If they are that good at cooking they'll make Michael Symon look like a high school lunch lady.
Were they offered bundled with something else online?
I'll grant you that's where they'd hide the bodies, but maybe people aren't into buying by driving to retail when gas is getting expensive.
Hmmmm
Borrowing costs at record lows (keeps interest costs under control)
Government spending defict at 10% of GDP ... keeps more than a few companies in business. Imagine what would happen if the deficit to GDp were cut in half. There go the profits.
The tire has a hole in it. It is flat. But the pump keeps pumping and blowing air into it ... which just leaks out through the hole, but s long as the pump keeps running the tire looks kind of inflated. faster pumping just makes the hole bigger. At some piont you will need to patch the hole. The longer we wait the bigger the patch required.
Exactly, great comment. Deficit at 10% of GDP creates a lot of private sector profits. the question is, how long can we sustain deficits at 10% of GDP???
To be fair, there's no reason to sell right now (other than normal profit taking). But, there will be soon, and given the light volume of this rally, the fall will be hard. So the robots buying right here are cutting it (i.e. profit margins) close. Risk/reward isn't worth it. I'd rather be going long gold and/or short bonds because those two trades are long-term winners. Easier to sleep at night.
Regarding corporate (credit bubble) profits: all-time high because of all-time low interest rates + layoffs. It's not rocket science. When rates inevitably rise and corporations run out of fat to trim, profits will tank. With gas on the rise and inflation talk in the mainstream media, rates might go up sooner than later.
Greece Defaults
Tomorrow Twitter @ 10h03
I'm In
Lets do it up.
Make sure you hashtag it #Greecedefaults so we can all retweet your tweeted tweet.
"Greece annonuces it will default on its sovereign debt. Papademos resigns in protest. #Greecedefaults @zerohedge"
My scheduled tweet via twuffer.
It is a sad truth but the underlying fundamentals of that graph are positive becasue they imply an increase in returns to REAL capital investment, which is the long run driver of growth.
One argument could be becasue interest rates are so low, that is why profits are rebounding. In the UK (my limited experience) it is the case that despite cheap bank money, business lending is tight and expensive and all data i have seen suggests the same in the US too.
The only cheap money is the banks from central banks which they swirl around amongst themselves, as they deleverage.
This is also a positive in the current environment since it is being coupled with develeraging in the credit markets- past profit boosts were fuelled by cheap money.
In time, that implied growth in productivity will filter through to higher incomes and wages via REAL growth, not fake credit fuelled growth.
Now all we need over the next decade is massive investment in education, better distribution of incomes, no defaults etc etc...
Open Source the monetary system. It would naturally create democracy. A place like Greece would be a good place to start it.
Accounting produced by crooks result in crooked numbers. All any company has to do these days is to make them so outrageous that they have enough money to pay a legal team to prove them in court or make a contribution to a politician.
The worst thing for me is a dead market. If it flatlines or drifts I don't make money. I'm pissed and would prefer democracy over this crap.
no it's not the economy. we all know this from the facts: "the economy stinks." the market rally's because the market rally's. this guy at Morgan is an idiot. stop quoting him.
Oligarchy planet of corporate welfare state heading to MArs, in collision course with meteorites called debt mountain, asymmetric, uncontrolled currency-trade war, public ire and fiat fire. The Ides of MArs and the crash of Crassus and Cresus in succession. Rome in convolution.
We will then move to World Dicatorship and from then on the world will look like Lake Placid. The killing will go on in silence. Silence of the lambs.
Wake up sheeple, get your world back! Never say never!
as a long time energy investor, the energy market is as confused and panicked as a preteen boy in barny franks bedroom.
I am referring to Nat gas producers..at historic lows, with massive debt..never has there been a rebound in the economy with nat gas producers and nat gas itself at such massive lows. You cannot paper over this with hopium and accounting tricks..this economy cannot be rebounding without a major move in Nat gas.
This is a hated and unbelieved rally....and it will continue as long as there are so many people outraged about it. You can qualify it as "fake" or otherwise, but there's nothing wrong with being fully invested in blue chip stocks and gold using trailing stops and the occasional sector rotation that books gains. Waiting around for a crash is guessing, not investing. My portfolio gains don't come with a disclosure that says "these profits were made on low volume".