Believe your lying eyes! Without the labels, it would be hard to tell the difference!
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Believe your lying eyes! Without the labels, it would be hard to tell the difference!
Stocks
Philly Fed plunged to -30.7 on expectations of +2.0
Some observations from Bloomberg's Joseph Brusuelas:
from Zero Hedge:
Following yesterday's upside surprise in the PPI, it was only logical that CPI would come higher than expected. However, printing at a 0.7% swing M/M, or the highest in years, was not expected. Broad CPI came at 0.5% in July after dropping -0.2% in June, or 3.6% Y/Y. This was far more than consensus which expected 0.2%. Core CPI however was in line with expectations at 0.2%. The reason for the surge? Gas, food and clothes. "The gasoline index rebounded from previous declines and rose sharply in July, accounting for about half of the seasonally adjusted increase in the all items index. The food at home index accelerated in July and also contributed to the increase, as dairy and fruit indexes posted notable increases and five of the six major grocery store food groups rose...The apparel index continued to rise sharply, increasing 1.2 percent in July; it has increased 3.9 percent over the past three months....The index for nonalcoholic beverages increased 0.9 percent in July as the coffee index continued to rise sharply." Elsewhere confirming that as expected the unemployment situation is deterorating, with 408K initial claims printing, on expectations of 400K, and making sure we dont have a revised 19 out of19 week of consecutive 400K+ prints was last week's revised 395K claims to, hold on to your seats, 399K. That's right: a 1K in jobs breaks the trend, huzzah! Just as importantly, those on EUCs and Extended benefits continued to plunge, dropping by 43K in the last week. And most frightening, the one year change in Americans receiving Emergency Compensation (EUC) has plunged from 4.7 Million to 3.1 Million. That's 1.6 million Americans who no longer even collect any benefits from the government.
A new liquidity and banking crisis appears to be breaking.
excerpt from WSJ:
"Federal and state regulators, signaling their growing worry that Europe's debt crisis could spill into the U.S. banking system, are intensifying their scrutiny of the U.S. arms of Europe's biggest banks, according to people familiar with the matter.
"The Federal Reserve Bank of New York, which oversees the U.S. operations of many large European banks, recently has been holding extensive meetings with the lenders to gauge their vulnerability to escalating financial pressures. The Fed is demanding more information from the banks about whether they have reliable access to the funds needed to operate on a day-to-day basis in the U.S."
and from Zero Hedge last night:
"In one sign of how European banks may be having trouble getting dollar funding, an unidentified European bank on Wednesday borrowed $500 million in one-week debt from the European Central Bank, according to ECB data."
Bloomberg News has an article titled No Double Dip Yet With U.S. Economy Punching Up Growth Figures. Completely amazing, including the commentary from the economists in the article who seem to prefer forecasting based on coincident or lagging indicators. Because the data are subject to substantial revisions in the future, it is absolutely imperative that economic forecasters draw on their judgement and experience when making their predications (have a look at On Economy, Raw Data Get a Grain of Salt on the front page of today's NYT for case in point). Here is the reality.
- Challenger layoffs have surged 80% in the past three months. That will lead to higher jobless claims in the near-term.
- Consumer buying intentions for big-ticket items has sagged to recession levels. Watch the savings rate in the next six months — this will be key to the macro outlook.
- Productivity has declined for two straight quarters and actually, unless companies wilfully want their margins to implode, will soon respond by shedding labour input.
- This already goes down as the weakest recovery on record despite unprecedented policy stimulus. Every dollar of balance sheet expansion at the Fed and the Treasury since the beginning of 2009 has generated 80 cents of incremental GDP gains. Not only is that a pitiful multiplier but now that there is no more stimulus, it is a legitimate question as to how an economy that only operated on policy steroids for the past two-and-change years is going to perform.
- There is no doubt that the economy is not yet contracting, but the debate is whether it will start to by year-end. The withdrawal of stimulus is feeling like a policy tightening. And after coming off a mere 0.8% annual rate of gain in GDP so far this year, the question is how the financial shock since mid-year in the form of higher debt levels and equity cost of capital is going to impact an already near-stagnant economy.
- The data on a three-month basis are following a classic pre-recession pattern and so is the stock market. Only three times in the past did the S&P 500 go down as much as it has without a recession ensuing. Market signals are important and this is what most economists missed in 2007. The 5-year note yield at 0.93% is a tell-tale sign — and is negative in real terms. Even with the speculative grade default rate falling in July to 2.3% from 1.9%, spreads are 150 basis points wider now than they were a month ago.
- Do these economists realize that S&P financials are down 25% from this year's highs? Can they explain how this fits into their forecast? The economy can hardly grow without credit unless it receives ongoing doses of government support, which for now is no longer forthcoming. The bank stocks are down more from their early highs than they were from January to August 2007 when the downturn was right around the corner.
- In plain-vanilla manufacturing inventory cycles, recessions are typically separated by five years, sometimes even longer as we saw in the 1980s and 1990s. But in a balance sheet/deleveraging cycle, recessions come more quickly — every two-to-three years. That puts late 2011/early 2012 in the spotlight. The imbalances in housing and debt were not fully resolved in the last recession, unfortunately enough (there is a nifty article on page A2 of today's WSJ, which cites Zillow research showing that only one-third of the 130 housing markets across the country can be considered "undervalued"). In a vivid sign that housing is no longer responsive to interest rates; mortgage applications for new purchases cratered 10.1% in the August 12th week. They have declined now for three of the past four weeks and are at the lowest level since July 2010.
- In a sign that households are concentrating more on getting their financial conditions into better shape than making that additional debt-financed purchase, the rate of late credit card payments fell to a 17-year low in the second quarter. Of course that is good news for the future, but going on a diet is never easy over the intermediate term (take it from me). The U.S. consumer is on a debt-reduction plan, having taken the aggregate level of liabilities down $50 billion in Q2. If we're not mistaken, Wal-Mart had some pretty cautious things to say about the U.S. consumer yesterday and we see that Dell, having missed its estimates today, also discussed that it is seeing a lack of "confidence" in "both corporate and household sectors" and "uncertain demand" as it cut its guidance for the year.
- Core Europe is stagnating and the Asian economy is cooling off. The Q2 contraction in Hong Kong GDP was the canary in the coal mine; Chinese industrial production contracted 0.4% MoM (based on a seasonally adjusted basis calculated by Haver Ana lytics) in July as well. We always said that Korea is important to watch because of its global export exposure, and with this in mind we recommend that you read Global Woes Land a Punch in Korea on page C5 of the WSJ. This bodes ill for the U.S. export sector. Also take note that the sharp slowing in core Europe is spreading through the entire continent — have a look at Slowdown Spreads to Central Europe on page 3 of today's FT.
- We have to understand that recessions are part of the business cycle. There is no reason to be fearful. Just be prepared. Hedge funds that are long high- quality, non-cyclical companies with strong balance sheets and dividend growth and yield attributes while being short small-caps that are highly cyclical and expensive is a money-making strategy in a recession. Hybrids with low equity correlations and BB-like yields, corporate bonds in defensivesectors with a visible cash-flow stream and a pervasive focus on energy, raw food, and gold — that is the ideal portfolio in an environment like this (as far as the food theme is concerned, go to page Cl of the WSJ and have a read of Chinese Hunger for Corn Stretches Farm Belt).
- Finally, if you're looking for the next shoe to drop, it may very well be in U.S. commercial real estate. We highly urge that you have a look at REITs Losing Haven Appeal on page C6 of the WSJ as well as Buyers Wary of Building Bubble on Cl (institutional investors are starting to back away from what appears to be an oversupplied and overpriced commercial property market in several major cities).
Source: Gluskin SheffIf you look at the monthly U.S. GDP data, it is already apparent that the U.S. economy is fraying at the edges. The economy contracted in both May and June and has shrunk now in four of the past six months. That sounds pretty recessionary to us. As the chart below shows, over the past six months, real GDP has actually declined at a 1.5% annual rate, which is just about as bad as it got at the worst point of the tech wreck a decade ago.
Forewarned is forearmed.
from Zero Hedge:
Following a big drop in June energy prices, which pushed the broader PPI to a one year low sequential change of -0.4%, the PPI is once again in an uptrend, rising by 0.2% in July, higher than consensus of 0.1%. Core PPI was higher by 0.4%, following the 0.3% increase in June, and double consensus of 0.2%.
Finally, some good news:
July industrial production came in slightly better than consensus expectatins of 0.5%, printing at 0.9% for the biggest rise of 2011 to date. This followed an upward revised June of 0.4%, up from 0.2%. Manufacturing output rose 0.6 percent in July, as the index for motor vehicles and parts jumped 5.2 percent, the biggest driver for the spike, and production elsewhere moved up 0.3 percent.
"The world is now staring into the abyss and we are most likely entering the Dark Years which I wrote about two years ago. The consequences will almost certainly be unlimited money printing and a hyperinflationary depression." -- Egon Von Greyerz
from Stone McCarthy:"You usually don't get three straight months of negative results unless you are in a recession (Note: NY Fed historical data only started in July 2001)." SMRA continues: "If that's not bad enough for you, the forward-looking new orders index fell to -7.8 in August, after posting -5.5 in July and -3.6 in June. Not only is the latest reading a new low in the recent string of negative results, it's also the third straight month of contraction."
by Bruce Krasting at Zero Hedge:
Christina Romer is one on the leading liberal economist in the nation. She’s no dummy. Valedictorian from Princeton, PHD from MIT, former Chairperson of the Council of Obama’s council of Economic Advisors and now she is a professor of economics at U.C. Berkley. She’s also a liar.
Ms Romer penned a piece for the NYT over the weekend. This was her plea for, guess what, more fiscal and monetary stimulus.
At the end of World War II, that ratio hit 109 percent — one and a half times as high as it is now.One and a half times Ms Romer? (This equates to a debt to GDP of 72%) Where does that number come from? A few facts:
Put the two together and the actual debt to GDP is currently at 97.25% (and rapidly rising). We will exceed the 100% barrier over the next six months.Current-dollar GDP -- the market value of the nation's output of goods and services -- increased 3.7 percent, or $136.0 billion, in the second quarter to a level of $15,003.8 billion.