Having yesterday explained how The Fed is "devoted" to Americans' interests and how "excited" she is to raise rates, Janet Yellen is set to face the Joint Economic Committee of Congress today... to explain to them how - in her mind - everything is awesome enough to hike rates, despite Chinese stocks crashing again, carnage in commodities, a revenues recession, plunging EBITDA, a collapse in US manufacturing, housing rolling over, and auto sales fading (light vehicle incentives up 14% YoY). Following the renewed volatility in markets, thanks to Draghi, the question is will Yellen be a little more hawkish given the room the ECB has given her?
Janet Yellen Explains Why The Fed Will Raise Rates Amid A Revenue, Profit & Manufacturing Recession - Live FeedSubmitted by Tyler Durden on 12/02/2015 12:26 -0500
Janet Yellen is set to begin the first part of her two-day excuse-fest for why The Fed will raise rates (market implied odds at 74%) in December despite Chinese stocks crashing again, carnage in commodities, a revenues recession, plunging EBITDA, a collapse in US manufacturing, housing rolling over, and auto sales fading (yes, read the facts here). Few expect her to rock the boat to change the market's perception, especially following Lockhart's confirmation that The Fed's job mandate has been met.
From "pumping out lots of jobs" in September to "not slowing meaningfully" in October, and despite consistent job losses in manufacturing (which is odd because auto sales are so awesome, right?), ADP reports November a jump to 217k (against expectations of 190k and October's 182k). ADP has missed expectations 8 months so far in 2015, but November's beat is the biggest since 2014 which one could argue was just catch up from ADP's big miss relative to BLS data (182 ADP with an upward revision to 196K now, vs 271k BLS). Of course, none of this "data" matters apparently as Fed's Lockhart said just this morning that the Fed's "criterion of job market improvement has been met."
Well this is a little awkward. After a day of exuberant unsubstantiated auto sales proclamations that a) it's not all subprime, b) 8-year credit terms do not pull forward demand, and c) it's totally sustainable; anyone could have been forgiven for being excited about the total vehicle sales of 18.12mm (according to Wards' data), just above expectations of 18.10mm and flat from October. However, Wards reported just 14.03mm domestic vehicles sold (missing expectations by the most since June) and dropping for the 2nd month in a row. Those darned facts do get in the way eh?
Despite ongoing exuberance at auto sales in America (which disappointed) - as crashing credit standards enable every Tom, Dick, and Muppet to buy too much 'depreciating asset' for their incomes - there are numerous problems few are talking about for automakers worldwide. Aside from "plans to buy a car" tumbling in the latest confidence surveys, and inventories-to-sales surging, China just poured ice cold water on any hope of stability in that 'growth' market as auto dealers issue the highest inventory alert since June. November data from China shows demand plunging, sales collapsing, and inventories soaring - a triple whammy of "no, things are not 'stabilizing'."
If it looks like a recession, walks like a recession and quacks like a recession, it’s a recession.
Today’s dilemma – for financial markets and central bankers – is that pushing back against nascent “risk off” unleashes another forceful bout of “risk on.” At this point, it’s either Bubble on or off – destabilizing either way. The global Bubble has grown too distended and the market backdrop too dysfunctional. Central bankers over the past 25 years have created excessive “money,” while incentivizing too much finance into financial speculation. There is now way too much “money” crowded into the securities and derivative markets, and the upshot is an increasingly hostile backdrop for leverage and speculation.
Subprime Auto Goes Full-Retard: Lender Sells $154 Million ABS Deal Backed By Loans To Borrowers With No CreditSubmitted by Tyler Durden on 11/03/2015 15:36 -0500
Remember Skopos Financial, the US subprime auto lender run by Santander Consumer veterans? Well, in a testament to just how desperate America is to perpetuate the US auto market "renaissance," the company just sold $154 millon worth of paper to investors partially backed by loans to borrowers with no credit score.
The talking heads were busy this week powdering the GDP pig. By averaging up the “disappointing” 1.5% gain for Q3 with the previous quarter they were able to pronounce that the economy is moving forward at an “encouraging” 2% clip. And once we get through this quarter’s big negative inventory adjustment, they insisted, we will be off to the ‘escape velocity’ races. Again. No we won’t! The global economy is in an epochal deflationary swoon and the US economy has already hit stall speed. It is only a matter of months before this long-in-the-tooth 75-month old business expansion will rollover into outright liquidation of excess inventories and hoarded labor. That is otherwise known as a recession.
No, Ben S. Bernanke will be someday remembered as the world’s most destructive battleship admiral. Not only was he fighting the last war, but his whole multi-trillion money printing campaign after September 15, 2008 was aimed at avoiding an historical Fed mistake that had never even happened!
With the second half of 2015 "grim" for Chinese auto sales, US automakers - who have field-of-dreams-like built inventories to record levels - have turned domestic for growth by extending credit for decades to anyone who can fog a mirror. That was all well and good until we discover this morning that the government's consumer confidence survey shows Americans auto-buying attitude is the lowest since Jan 2013. Automakers have two options, offer buy-one-get-one-free to all new Syrian refugees or cut production dramatically in hopes of easing inventory excess. Good luck.
In our Chinese stock market wrap following Friday's unexpected rate cut, which saw the Shanghai Composite storm out of the gate, we said that "we would not be surprised to see China's stocks sliding back into the red very shortly as "sell the news" concerns return, and as the increasingly more addicted "markets" demand even more liquidity from central banks just to stay unchanged, let alone rise to new all time highs." Sure enough, with just minutes to go before the close, the SHCOMP wiped out all its daily gains and was set for a red close had it not been for the "national team" miraculous last minute intervention which was inevitable after Friday's PBOC rate cut, and which lifted the composite 0.5% into the green as the euphoria was rapidly evaporating.
Two recent surveys, along with numerous other studies and data, reveal most American households to be living on the brink of catastrophe, but continuing to act in a reckless and delusionary manner. Telling people the truth today is meaningless, as they don’t want their illusions destroyed. But destroyed they will be, when this teetering edifice of debt comes crashing down on their heads.