With earnings season now virtually over, it is time to ask why, despite a majority of the companies beating expectations, is the S&P inline with where it was when earnings season started. There are two main reasons why the market has not been impressed: the percentage of "beaters" is nothing spectacular on a historical basis as was shown previously, especially in the aftermath of aggressive cuts to Q1 top and bottom line forecasts heading into earnings reports; more importantly, even with Q1 earning coming out as they did, the bulk of the legwork still remains in the "hockeystick" boost to the bottom line that is completely Q4 2012 loaded, as bottom up consensus revisions to the rest of 2012 are negative despite Q1 beats. As Goldman summarizes: "1Q 2012 will establish a new earnings peak of $98 on a trailing-four-quarter basis. With 88% of S&P 500 market cap reported, 1Q EPS is tracking at $24.10, 1% above consensus estimates at the start of reporting season and reflecting 7% year/year growth." So far, so good. And yet, "Despite the positive surprises, full-year 2012 EPS estimates are unchanged relative to the start of earnings season, and currently stand at $105 vs. our top-down forecast of $100. Over half of consensus 2012 earnings growth is attributed to 4Q. Margins at 8.8% have hovered near peak levels for a year, but consensus expects a sudden jump in 4Q to a new peak of 9.1%. We forecast a further decline to 8.7%."
Few have been as steadfast in their correct call that the US economy sugar high of the first quarter was nothing but a liquidity-driven, hot weather-facilitated uptick in the economy, which has now ended with a thud, as seen by the recent epic collapse in all high-frequency economic indicators, which have not translated into a market crash simply because the market is absolutely convinced that the worse things get, the more likely the Fed is to come in with another round of nominal value dilution. Perhaps: it is unclear if the Fed will risk a spike in inflation in Q2 especially since as one of the respondents in today's Chicago PMI warned very prudently that Chinese inflation is about to hit America in the next 60 days. That said, here are some of today's must read observations on where we stand currently, on why 1937-38 may be the next imminent calendar period deja vu, and most importantly, the fact that Rosie now too has realized that the next credit bubble is student debt as we have been warning since last summer.
Today Tyler put up a video of the revered Mr. Biderman of Trim Tabs fame. Mr. B was making an absolute fool of himself while trying to be critical of government reports. The video is embarrassing to watch. In this report I show all the many mistkes Biderman makes as he tries to lampoon retail sales and dis the governement. In the end he winds skewrering only himslef. Hoist on his own petard. Follow him and use his methodolgy at your own risk.
We all know the Status Quo's response to the global financial meltdown of 2008 has been a travesty of a mockery of a sham--smoke and mirrors, flimsy facades of "recovery," simulacrum "reforms," and serial can-kicking, all based on borrowing and printing trillions of dollars, yen, euros and yuan, quatloos, etc. So when will the travesty of a mockery of a sham finally come to an end? Probably around 2021-22, with a few global crises and "saves" along the way to break up the monotony of devolution.
As traders walk in this morning, there are only two numbers they care about: 522 bps and 6.15% - these are the Spanish 5 year CDS and 10 Year yields, respectively, the first of which is at a record, while the second is rapidly approaching all time wides from last November. Needless to say Europe is no longer fixed. And yet despite a selloff across Asia, Europe is so far hanging in, as are the futures courtesy of a persistent BIS bid in the EURUSD just above 1.30 to keep the risk bottom from falling off. It remains to be seen if they will be successful as wrong-way positioned US traders walk in this morning.
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.