St Louis Fed
A month ago, we showed something disturbing: the weekly increase in savings deposits held at Commercial banks soared by a record $132 billion, more than the comparable surge during the Lehman Failure, the First Debt Ceiling Fiasco (not to be confused with the upcoming second one), and the First Greek Insolvency. And while there were certainly macro factors behind the move which usually indicates a spike in risk-aversion (and at least in the old days was accompanied by a plunge in stocks), a large reason for the surge was the unexpected rotation of some $70 billion in savings deposits at Thrift institutions leading to a combined increase in Savings accounts of some $60 billion. Moments ago the Fed released its weekly H.6 update where we find that while the relentless increase in savings accounts at commercial banks has continued, rising by another $70 billion in the past week, this time there was no offsetting drop in Savings deposits at Thrift Institutions, which also increased by $10.0 billion. The end result: an increase of $79.3 billion in total saving deposits at both commercial banks and thrifts, or an amount that is only the third largest weekly jump ever following the $102 billion surge following Lehman and the $92.4 billion rotation into savings following the first US debt ceiling debacle and US downgrade in August 2011.
When people think of the conventional battery of options the BLS applies to fudge the monthly payrolls number, the labor force participation is the first thing that comes mind: after all the thesis is that old workers are increasingly dropping out of the labor force and retiring. Nothing could be further from the truth as can be seen in this chart of workers aged 55-69, i.e. the prime retirement age. But perhaps a far more important secular issue is the complete lack of pickup in the prime worker demographic, those aged 25-54, which in November dropped by 400k to 94 MM. This is a level first breached in April 1997, in other words in the past 15 years not a single incremental job has been gained in this most productive and lucrative of age groups!
Here's 'Buck' to explain, in plain English, "one of the most complex 'but effective' institutions in the United States - The Federal Reserve System". Whether you view for the pure irony of it - or pass on to an Econ PhD friend, this animated cartoon from the St. Louis Fed (funded by our cliff-invoked taxpayer money we are sure) takes us from inception around one hundred years ago to the present-day and covers the three divisions (Reserve Bank, FOMC, and Board of Governors) and three responsibilities (providing financial services, conducting monetary policy, and supervising banks). It seems 'Buck' had not been informed of the other and varied roles the Fed plays in the world's populations' lives. How long before this is required viewing for all K-12 schools nationwide?
- Two weeks ago here: The Latest Greek "Bailout" In A Nutshell: AAA-Rated Euro Countries To Fund Massive Hedge Fund Profits... and now on Bloomberg: "Hedge Funds Win as Europe Will Pay More for Greek Bonds" (BBG)
- Oracle sends shareholders cash as tax uncertainty looms (Reuters)
- GOP Makes Counteroffer In Cliff Talks (WSJ)
- Iran says captures U.S. drone in its airspace (Reuters)
- IMF drops opposition to capital controls (FT)
- Vogue Editor Wintour Said to Be Possible Appointee as U.K. Envoy (BBG)
- Juncker Stepping Down French Finance Minister to Head Euro Group? (Spiegel)
- Australia cuts rates to three-year low (FT)
- Europe’s banking union ambitions under strain (Reuters)
- EU Nations Eye New ECB Bank Supervisor Amid German Doubts (BBG)
- Frankfurt's Ambitions Get Cut Back (WSJ)
- House Republicans Propose $2.2 Trillion Fiscal-Cliff Plan (BBG)
Perhaps the Bureau of Economic Analysis was hoping that today's cornucopia of ugly income and spending data would be enough for those who keep track of the US government's Department of Truth shennanigans and ignore the meat behind the numbers. Whatever the reason, the real story in today's Personal Spending data was not the consumer weakness, but the unceremonious revision of historical data, which as the chart below mysteriously whacked away a whopping $40 billion in real (i.e., inflation adjusted) disposable income. Because as the chart below shows, somehow, somewhere starting in March and continuing through the last month just before the election (the September data was released on October 29 or a week before Obama's reelection), $40 billion in cumulative disposable income evaporated. Where it went, and/or why it had been counted in the first place is anyone's guess. But one thing is certain: 0.25% of annualized GDP was just whacked away. One wonders: how many more such retroactive revisions will we see before reality and economic propaganda myth are finally superimposed?
While the just released Durable Goods orders report for October came in modestly better than expected (which many thought would be a decline due to Hurricane Sandy), the primary driver of this continues to be record durable good inventory accumulation. Excluding the noise, and focusing only on real, non-noisy economic strength metrics such as New Capital Goods Orders (technically defined as the year over year change in Non-Defense Capital Goods Excluding Aircraft), a very different and far uglier picture emerges. In fact, the October Y/Y Plunge of -8.1% in this major indicator was the biggest drop since 2009.
Frequent readers know that in addition of any "data" and "numbers" out of Larry Yun's National Association of Realtors, which we openly boycott as these are consistently manipulated (recall the massive historical December 2011 revision), slanted and conflicted, the second dataset which we have mocked with a passion is anything coming out of the ADP, which every month releases its "Private Jobs" number a day before the official BLS Non-farm Payroll data. Today, our mockeries have been proven 100% spot on. The reason? A week ago, ADP announced that going forward it would coordinate with Moody's (yes, that Moody's), and especially its chief economist, SecTres hopeful (InTrade odds of actually attain that post: 0.00) Mark Zandi, to fudge adjust its data going forward. The data revision was supposed to be publicly disclosed tomorrow when the official October ADP number was released. Well, just like today's Chicago PMI, and so many other data points recently, this too was released early. What the early release allowed us to promptly calculate is that using the historically revised numbers, and comparing those based on the original methodology, in 2012 alone, the US would have lost a whopping... 365,000 private jobs! Putting thus number in context, according to the revised methodology, the US has generated only 1.172MM jobs in 2012 through September, or in other words, a statistical "fix" magically eliminated over 30% of what the market had previously expected were job gains, a number which the incumbent president has certain taken advantage of on more than one occasions while campaigning.
In summary, things aren't always as they seem -- and the Fed is manipulating everything.
While as Bloomberg reports the EPS beat to miss ratio so far is 68%:32%, the scariest statistic of the day goes to Deutsche Bank who said that "The beat-to-miss ratio... is running 41%:59% for revenue." This means nearly 50% more misses than beats in the earnings season so far. DB continues: "Recall that Q2 was also one where we saw better EPS beat but weaker revenue performance so it seems that companies have been eking out earnings by squeezing costs and wages." Now as every entry level analysts, Treasurer and CFO knows, there are 1001 ways to boost ESP cut corporate overhead (and those exclude accounting gimmicks, ahem all banks and GE), chief among them of course is laying people off and replacing them with part-timers and temps (something that has been going on in the US for 3 years now as we first showed in 2010), there is precisely zero way to hide the fact that there is simply less demand for products and services at the very top level in a world in which 2% growth, formerly known as stall speed, is the New Killing it, and in which real disposable income just turned negative once again, not to mention the endless collapse in average hourly earnings.
The period from 2003 to 2008 has been nicknamed 'The Great Moderation' as credit spreads collapsed close to zero, free-wheeling securitizations flooded the market with liquidity which repressed every credit instrument and forced investors to reach down in quality and out the curve for every extra tick of yield or carry. The period from the lows in 2009 could well be nicknamed 'The Great WTF' as credit spreads collapsed back down, and free-wheeling central banks flooded the market with liquidity which repressed every credit instrument and forced investors...blah blah blah... It would appear from the analog below that while markets do not repeat, they sure like to echo. We just remind those bulls looking for the next 18% lift that the analog period is when reality started to come out from behind the curtain - beginning in 2007...The Great Realization.
Just when we thought we may finally get one decent economic data point which even we could get excited about, we decided to look at the Non-Seasonally Adjusted September retail sales data. After all the $4.7 billion seasonal increase in headline retail sales was the second highest ever (in absolute terms, second only to 2004). Turns out our curiosity was an enthusiasm-dowsing mistake, as a number which on the surface looked good, was hardly validated by the Not-Seasonally Adjusted number, which plunged by $31.9 billion. How does this September sequential change compare to previous years? See the chart below and decide for yourselves if the massive NSA plunge in September 2012 merits the second best seasonally adjusted retail sales increase in history.
You know the drill: please point out on this chart, which shows the yearly change in average hourly earnings for all US private workers, just where is this so-called "recovery", which an additional $6 trillion in public debt, and 5 quantitative easing episodes, have allegedly created out of thin air. For those confused, like us, we bring attention to the fact that in the past two months we have seen the smallest Y/Y increase in avg hourly earnings. Ever.
When it comes to diving trends in the Fed's take over of the Treasury market, there are those who haven't got the faintest clue about what is going on, such as Paul Krugman, who naively looks (as Bernanke expects all economists to) at the simple total notional of securities held by the Fed and concludes that the Fed is not doing anything to adjust fixed income risk-preference, and then there are those who grasp that when it comes to defining risk exposure in the bond market, and therefore in equities, all that matters is duration, expressed in terms of ten-year equivalents. Sadly, this is a data set that not every CTRL-V major or Nobel prize winner (in order of insight) can grab from the St. Louis Fed - it is however available to those who know where to look. And as the chart below shows, even as the Fed's balance sheet has remained flat in notional terms, its Ten Year equivalent exposure has soared, rising by 50% during Operation Twist alone, from $900 billion to $1.313 trillion. What this means in practical terms, as Stone McCarthy summarizes, is that the Fed now owns 27.05% of the entire inventory in outstanding ten-year equivalents. This leaves less than 75% of the market in private hands.