Unlike yesterday's modest manufacturing ISM beat, today's follow up March Services ISM is out at 56.0, reverting back to the Schrodinger theme so prevalent these days, missing the consensus of 56.8, and down from 57.3 in February, posting the first sequential decline since September 2011, and the first miss to expectations in 4 months. The core New Orders indicator was down from 61.2 to 58.8, still above 50 for 32 consecutive months. The backlog of new orders also dropped from 54.5 to 52.5 Amusingly, despite every energy commodity surging, the Prices index in March somehow posted a miraculous drop from 68.4 to 33.9. The only series that was contracting, and unchanged at 49.5, was supplier deliveries, even as inventories increased once again, from 53.4 to 54.0. And if the ADP report was enough to give traders a headache whether or not more QE is coming, today's final economic data point, refutes the latest jobs strength ahead of the NFP, once again leaving everyone into the dark as to the Chairman's true intentions.
For every semi-positive data point the bulls have emphasized since the market rally began, there's a counter-point that makes us question what all the fuss is about. The bulls will cite expanding US GDP in late 2011, while the bears can cite US food stamp participation reaching an all-time record of 46,514,238 in December 2011, up 227,922 participantsfrom the month before, and up 6% year-over-year. The bulls can praise February's 15.7% year-over-year increase in US auto sales, while the bears can cite Europe's 9.7% year-over-year decrease in auto sales, led by a 20.2% slump in France. The bulls can exclaim somewhat firmer housing starts in February (as if the US needs more new houses), while the bears can cite the unexpected 100bp drop in the March consumer confidence index five consecutive months of manufacturing contraction in China, and more recently, a 0.9% drop in US February existing home sales. Give us a half-baked bullish indicator and we can provide at least two bearish indicators of equal or greater significance. It has become fairly evident over the past several months that most new jobs created in the US tend to be low-paying, while the jobs lost are generally higher-paying. This seems to be confirmed by the monthly US Treasury Tax Receipts, which are lower so far this year despite the seeming improvement in unemployment. Take February 2012, for example, where the Treasury reported $103.4 billion in tax receipts, versus $110.6 billion in February 2011. BLS had unemployment running at 9% in February 2011, versus 8.3% in February 2012. Barring some major tax break we've missed, the only way these numbers balance out is if the new jobs created produce less income to tax, because they're lower paying, OR, if the unemployment numbers are wrong. The bulls won't dwell on these details, but they cannot be ignored.
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.
Bailed-out but un-restructured. And now Fiat-Chrysler CEO is crying for help as EU car sales crash.
Americans have an illogical love affair with their vehicles. There are 209 million licensed drivers in the U.S. and 260 million vehicles. The U.S. has a higher number of motor vehicles per capita than every country in the world at 845 per 1,000 people. Germany has 540; Japan has 593; Britain has 525; and China has 37. The population of the United States has risen from 203 million in 1970 to 311 million today, an increase of 108 million in 42 years. Over this same time frame, the number of motor vehicles on our crumbling highways has grown by 150 million. This might explain why a country that has 4.5% of the world’s population consumes 22% of the world’s daily oil supply. This might also further explain the Iraq War, the Afghanistan occupation, the Libyan “intervention”, and the coming war with Iran. Automobiles have been a vital component in the financial Ponzi scheme that has passed for our economic system over the last thirty years. For most of the past thirty years annual vehicle sales have ranged between 15 million and 20 million, with only occasional drops below that level during recessions. They actually surged during the 2001-2002 recession as Americans dutifully obeyed their moron President and bought millions of monster SUVs, Hummers, and Silverado pickups with 0% financing from GM to defeat terrorism. Alan Greenspan provided the fuel, with ridiculously low interest rates. The Madison Avenue media maggots provided the transmission fluid by convincing millions of willfully ignorant Americans to buy or lease vehicles they couldn’t afford. And the financially clueless dupes pushed the pedal to the metal, until everyone went off the cliff in 2008.
Following several months of retail sales misses, the market was hoping for blow out data- after all consumers have been largely releveraging. What it got was a normal that was in line with expectations at the seasonally adjusted headline level (+1.1%), following an upward revised 0.6% increase in January (0.4% before), and a stripped number ex autos and sales of +0.6%, on expectations of +0.5%. The latter was revised as a decline from the previous 0.6% which was in turn hiked up to 1.0%. Motor vehicle sales, courtesy of the already noted soaring channel stuffing by Government Motors, rose 1.6% in February sequentially. Gasoline stations saw a 3.3% jump sequentially, and 10.3% compared to last year. This even as demand for gas has plunged to all time lows: maybe it has something to do with price. At least people are still eating (+0.8%), and are clothed (+1.8%) even if they are shopping less at General Merchandise Stores (-0.1%) and have less furniture (-1.2%). According to Bloomberg economist Rich Yamarone, the report reflects "broad-based strength," may show "commodity inflation, with building materials sales up 1.4% and gasoline stations up 3.3%." And BBG's Joe Brusuelas adds: "Two-thirds of growth in retail sales due to rising gasoline & auto sales. Gen merch declines 0.1%, due to subs effects caused by inflation." Thank you inflation - may we have another.
While US equity futures continue to do their thing as the DJIA 13K ceiling comes into play again (two weeks ago Dow 13K was crossed nearly 80 times), ahead of today's 2:15pm Bernanke statement which will make the case for the NEW QE even more remote, none of the traditional correlation drivers are in active mode, with the EURUSD now at LOD levels, following headlines such as the following: "Euro Pares Losses vs Dollar as Germany’s ZEW Beats Ests" and 20 minutes later "EUR Weakens After German Zew Rises for 4th Month." As can be surmised, a consumer confidence circular and reflexive indicator is the basis for this Schrodinger (alive and dead) euro, and sure enough sentiment, aka the stock market, aka the ECB's balance sheet expansion of $1.3 trillion, is "improved" despite renewed concern over Spain’s fiscal outlook after better than expected German ZEW per Bloomberg. Next, investors await U.S. retail sales, which have come in consistently weaker in the past 3 month, and unless a pick up here is noted, one can scratch Q1 GDP. None of which will have any impact on the S&P 500 policy indicator whatsoever: in an election year, not even Brian Sack can push the stock market into the red.
Today, almost every financial journalist that is published in the mainstream media prefers to be steered by their controlling interests into being a “cleaner”, scrubbing clean the facts and hard evidence of every financial crime scene and of inherent risks that lurk everywhere, and instead, opting to present a rosy, unrealistic, fantasy outlook of stock markets and the global economy.
While hardly expecting anything quite as dramatic as the default of a Eurozone member, an epic collapse in world trade, or a central banker telling the world that "he has no Plan B as having a Plan B means admitting failure" in the next several days, there are quite a few events in the coming week. Here is Goldman's summary of what to expect in the next 168 hours.
On Thursday, we were the first to expose GM's latest strong car sales data as nothing more than the latest in a long series of accounting gimmicks known as 'channel stuffing' when excess inventory is offloaded to a vendor channel, in this case GM dealers, while allowing the company to book revenue, and, of course, profits (most likely on a FIFO basis thus further making numbers a complete myth in a time of once again surging input costs). The problem with channel stuffing is it can only go on for so long before the intermediary collapses under its own weight due to so much excess inventory the only next possible step is wholesale dumpin, in the process destroying the brand. Sure enough, it took about 24 hours for this latest speculation to be proven right as GM announce it was "temporarily" halting production of its Volt electric car. Per The Hill: "We needed to maintain proper inventory and make sure that we continued to meet market demand," GM spokesman Chris Lee said in a telephone interview." Translated into English, this means that GM has flooded dealer floors with so many of the spontaneously combusting cars that it has managed to bring demand to zero.
Yesterday, when we reported about Goldman not one, but two GDP Q1 forecast cuts in one day, we said to "watch for the Wall Street lemming brigade to quickly follow in Goldman's footsteps." Sure enough, here is Bank of America, rushing first into the bandwagon, trimming its Q1 forecast from 2.2% to 1.8%. This is perfectly expected: recall that from day 1 of 2012, most banks had been pushing for QE3, ignorant of the massive liquidity tsunami that was going on behind the scenes. Well, the impact of that has now come and gone, with no more easing from the ECB on the horizon for a long time. Which means that the focus can again shift to how "bad" the US economy is in preparation for the inevitable Bernanke gambit. Needless to say this will make the pre-election economy appear like a total farce in the months before the re-election: soaring employment and plunging everything else. Good luck explaining that away. Incidentally explains why the EURUSD has resumed its slide: the market is now pushing Bernanke to halt the appreciation of the USD against the EUR, and thus the implicit benefit of German's economy over that of the US, which can only happen with further promises of easing. That said, we can't wait for the statement as the vaudeville Trio of Bianco, Chadha and of course LaVorgna to follow suit and slash their now comically hyperbolic expectations.
- Brazil declares new ‘currency war’ (FT)
- Postal Cuts Are Dead Letter in Congress (WSJ)
- China state banks to boost selected property loans (Reuters)
- ECB Says Overnight Deposits Surge to Record (Bloomberg)
- Van Rompuy confirmed for 2nd term as EU Council president (Reuters) - you mean dictator
- BOJ Shirakawa: Japan consumer prices to gradually rise (Reuters)
- IMF Says Threat of Sharp Global Slowdown Eased (Reuters)
- Eurozone delays half of Greece’s funds (FT)
- BOJ Openings Can Shape Monetary Policy (Bloomberg)
"It Is completely ironic that we would be experiencing one of the most powerful cyclical upswings in the stock market since the recession ended at a time when we are clearly coming off the poorest quarter for earnings... There is this pervasive view that the U.S. economy is in better shape because a 2.2% sliver of GDP called the housing market is showing nascent signs of recovery. What about the 70% called the consumer?...Let's keep in mind that the jump in crude prices has occurred even with the Saudis producing at its fastest clip in 30 years - underscoring how tight the backdrop is... Throw in rising gasoline prices and real incomes are in a squeeze, and there is precious little room for the personal savings rate to decline from current low levels." - David Rosenberg
Are we really in an economic recovery or is it a figment of the Fed's quantitative easing? This will be the biggest factor in the 2012 elections.
Earlier, you heard it from Jeff Gundlach, whom one can not accuse (at least not yet) of sleeping on his laurels and/or being a broken watch, who told his listeners to "reduce risk right now" especially in the frenzied momo stocks. Now, it is David Rosenberg's turn who tries to refute the presiding transitory dogma that 'things are ok" and that a Greek default will be contained (no, it won't be, and if nobody remembers what happened in 2008, here is a reminder of everything one needs to know ahead of the "controlled", whatever that is, Greek default). Alas, it will be to no avail, as one of the dominant features of the lemming herd is that it will gladly believe the grandest of delusions well past the ledge. On the other hand, they don't call it the pain trade for nothing.