Tag Archives: Empire State Manufacturing survey

The Economy Is Starting To Crash – There Will Be No Rate Hike In September

“Dave I got your emails – it’s over” – Good friend in NYC who called this morning, has worked on Wall Street for over two decades

All of the meaningful, least manipulated economic indicators are now collapsing at the rate at which they collapsed in 2008/2009.  For instance this morning’s Empire State Fed manufacturing index:

UntitledThe index itself is back to where it was in 2009. The new orders index – the best indicator for current wholesale demand – plunged to a level last seen in 2010, when the Fed was in the early stages of pumping nearly $4 trillion in fresh printed money into the financial system.

The collapse in commodity prices has been widely acknowledged, but the most important commodity barometer of economic activity is oil.  The price of oil began to collapse in the middle of 2014, which is when I have suggested the U.S. economy started to hit a wall.  After a dead-cat bounce, the collapse has resumed:

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The big Wall Street banks have huge incentive to try and keep the price of oil propped up. Why? Because they are sitting $100’s of millions of unsold bank debt issued by rapidly collapsing U.S. oil shale companies. Sure, paltry fines levied by the SEC and CFTC for breaking the law and engaging in fraudulent activities is written off as the cost of doing business. But the prospect of losing $100’s of millions on senior “secured” bank debt is looked upon a “blood money.”

If the big Wall Street firms, with the help of Central Banks, can’t keep the price of oil propped up, it means there’s a big problem in the global economy, including and especially the United States – the world’s largest source of demand for oil.

Finally, perhaps the best overall indicator that the end to the insanity that has gripped the markets is over is the degree to which the Fed’s intervention in the markets has become so painfully obvious.  Everytime the S&P 500 is on the verge of falling off a cliff – like today, for instance – a big bid miraculously appears – a big bid that the hedge fund HFT-driven algos embrace and front-run, driving the stock market away from the edge of that cliff.  I know a lot of people who are still highly irritated by this.  But I would be more shocked if Yellen and Company didn’t intervene in the stock market on a daily basis.

Even worse is the intervention in the Treasury market.  Interest rates are on virtual “lock-down.”  In fact, I would argue that, on a de facto basis, the Treasury market for all intents and purposes has been “shut down.”  The Fed has become the largest holder by far and, via its network of Wall Street primary dealers and the Bank of Japan, has ensured that a meaningful supply from sellers will never hit the market.  To refresh everyone’s memory, recall that the Bank of Japan is buying JGBs from Japan pension funds using printed yen and replacing them with U.S. Treasuries.   Indirectly Japan has become the Fed’s warehouse for loose Treasuries – “loose” as in Treasuries being unloaded by Russia and China.

Do not mistake the money that has been “created” by the insane rise of a stock market that has been pushed to its highest valuation level in history.  This is not “wealth” – it’s shifting the deck chairs around on the Titanic.  The revenues of the S&P 500 companies have been declining for several quarters in a row now.  If we were to use the accounting standards that were enforced in 2000 – instead of the highly misleading accounting rules in place now –  the p/e ratio, forward p/e ratio and the dubious “Shiller p/e ratio” would show their highest levels ever.

Perhaps the biggest issue I’m grappling with now is what will happen when the Fed loses control?  Rather than watch helplessly as the stock market collapse, I am beginning to wonder if they’ll just shut the markets down…

NYSE circuit breaker

As The U.S. Economic Collapse Proceeds, Gold Continues To Be Heavily Manipulated

The predictability of the Asia rise/European/NY selloff pattern has become almost comic…Gold surged $4 in the last couple of hours of Shanghai trading peaking at $1,163.30 in April about 2-30 AM. Since about 1AM a sliding $US should have been helping but as MKS Sydney reports

“The $1160 level throughout the morning seemed well capped however with what seemed to be some decent iceberg orders lingering on the offer… There was decent selling from retail, macro and even physical names above $1160 so it does still seem pretty heavy going towards the top end of the range and will likely continue this way into the FOMC.”

There are plenty of well-trained (and well-fed) Bears around.

The quote above is from John Brimelow’s “Gold Jottings” daily gold market update (subscription-based).   Almost every night gold rallies during Asian trading hours, only to be pushed back down once the fraudulent paper gold markets in London (LBMA) and NY (Comex) open.  India and China continue to aggressively accumulate physical gold.

Meanwhile, today’s economic reports continue to confirm the fact that the U.S. economy is beginning to contract.  The Empire State Manufacturing  index dropped to 6.9 from last month’s 7.8 reading, missing the consensus estimate of 8.  The new orders component plunged to negative 2.4.  

Industrial production came in at .1%, well below the consensus estimate of .3%.  The January report was revised to negative .3 from the original report of +.2%.   Had the prior report not been revised lower, the report for today would have been significantly negative – as in, reflecting a large monthly contraction in manufacturing output during February.

Finally, the Homebuilder Sentiment index – which I consider to be one of the more absurdly Orwellian metrics – dropped again to 53 from February’s 55.  It missed the Wall Street brain trust estimate of 56.   Here’s Bloomberg’s mascara-covered take, which is in and of itself uncharacteristically and tersely blunt:

The lack of first-time buyers is an increasing negative for the new home market, evident in the housing market index for March where growth slowed 2 points to an 8-month low of 53. The traffic component of the index again shows particular weakness, down 2 points to 37 which is a 9-month low and directly reflects the lack of first-time buyers.

Notwithstanding Bloomberg’s uncharacteristic candor in its interpretation of the falling builder sentiment index, it’s not just the first-time buyer traffic that is falling off.   The median real household income continues to decline, as new jobs are primarily are of the part-time variety and more people leave the workforce than are finding jobs.  This dynamic does not generate the level of income that can support home ownership.  This is why the rate of homeownership continues drop every month.

Let’s not forget that mortgage rates are near all-time lows and the Obama Government has significantly reduced the credit requirements to qualify for the taxpayer-subsidized mortgage programs  (FHA, Fannie Mae, Freddie Mac, VHA, USDA).  Even Government intervention is not stimulating housing sales.

If you want to exploit the fact that the homebuilders are now more overvalued than they were at the peak of the housing bubble in 2005/2006, my Homebuilder Research Reports will show you why and how.

When I say “overvalued,” that means relative to the companies’ underlying financials.  The stock prices are lower now that at the peak, but the various financial metrics like debt, inventory and p/e ratios are higher now that at the peak. Meanwhile, we found out last week that foreclosures, especially repeat foreclosures, are at a 12-month high – LINK

foreclosure-sign