Yesterday, I mentioned the likelihood that a recession is coming. The indicators for this are mostly from the manufacturing side of the economic ledger, and they are at this point merely suggestive. For example, the ISM Manufacturing Index is at 50.2, below which level we often see deeper downdrafts (see chart, source Bloomberg).
The Employment Report on Friday was bad – but it wasn’t the unmitigated disaster that the consensus seems to have spun it into. It is true that there were no bright spots. It is true that the net number of new jobs added was worse than consensus and indeed worse than some of the more pessimistic expectations. But 142k new jobs is not a recessionary collapse (yet). Let us remember that one or two months every year fall below that figure (see chart, source Bloomberg).
We have been successfully managing an ‘in motion’ market since the August festivities kicked off. It is October and Money Managers (NAAIM), Newsletter Writers (Investors Intelligence) are thoroughly spooked and Small Speculators are thoroughly short the market. It’s a perfect contrarian setup.
Meanwhile, over in Goldbugsville there is a lot going on as well. NFTRH 363 is 30 pages of commentary and in depth analysis on all of this and also gets its geek on (with the aid of FloatingPath.com‘s awesome graphical breakdowns) and gets inside the September Payrolls report in order to flesh out the dynamics in a flagging economy.
NFTRH 363, a very helpful market management report if I do say so myself… out now.
 +142,000… (BLS release). I’ll not give up my day job as a market manager. They’d laugh me right out of the Sacred Society of Gurus. Hey, at least the Squid was worse; I read a blurb that Goldman predicted +215,000.
I am the last person you will see playing Swami on important matters like when will the stock market’s bull end or when will gold’s bear market end. One remains above the October 2014 lows and is thus in a biggest picture up trend and the other is still in a down trend, current bounce aside.
Those are simple parameters that cannot be argued with. You add in some tools, like gold ratios or bond relationships or sentiment profiles, etc. and you can add in probabilities to help form your narrative.
By Jeffrey Snider, Alhambra Investment Partners
US Exposure to the ‘Goods Economy’ Remains
The ISM for August was the lowest reading since the taper drama of 2013. At just 51.1, there isn’t any real basis for suggesting the manufacturing sector is even expanding (no matter what these sentiment surveys claim about that 50 dividing line). The “correct” interpretation is one which discards the exact figure for the relativism. For once, media commentary was in the ballpark:
Manufacturing in the U.S. expanded in August at the slowest pace since May 2013 as anemic demand from emerging markets such as China translated into leaner factory order books.
The Institute for Supply Management’s index fell to 51.1, lower than the Bloomberg survey median, from 52.7 in July, a report from the Tempe, Arizona-based group showed Tuesday. A measure of exports matched the weakest reading since April 2009.
“It raises a warning flag about the outlook,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “We’re going to have an inventory adjustment and, on top of that, weak exports are going to remain a weight. We’ll see a period of time when manufacturing is soft.”
With the direction for manufacturing established, what’s left is arguing about the degree of adjustment that is, in time, absolutely going to take place. The driving imbalance remains inventory which, in the context of sluggish and even contracting sales, suggests to me something far more than “soft.” And that view was formed even before the second “dollar” wave fully crested. I don’t think the sales imbalance from that is yet revealed, though the updates in manufacturing from the regional Fed surveys suggest it’s getting quite serious.
University students live in the lap of luxury
The U.S. housing market may be about to implode — again.
Before I get into the “why,” know that the residential real estate market never fully recovered.
Annualized new home sales this past July stood at 507,000, vs. the July 2005 peak of 1.39 million. The chart and commentary from the August Elliott Wave Theorist offer:
By Jeffrey Snider, Alhambra Investment Partners
When I wrote on Friday that I was encouraged for the first time in years over the combined rise of Trump and Sanders I meant nothing by way of suggesting either as an actual candidate or what they might do should they pull it out. If anything, I implied that the political situation might have to follow the economy; that it should get a whole lot worse before it gets much better.
The point was not so much about the candidates themselves but the palpable angst that they loosely but clearly represent. It is a growing bipartisan rejection of the status quo as it relates to the economy. For years now, the political class has been lying about the state of the recovery because economists have so fortified their temple. Monetary policy and fiscal “stimulus” are all that there is and nothing else except that which retains the political hierarchy remains. It joins Tea Party and socialists alike, to tell Janet Yellen and/or Wall Street “enough.” The uniting factor is an as-yet amorphous or ephemeral sense that “something” is wrong and that those that continue to press on as if there weren’t need to be removed.
It has been a while since we went around DARPA’s creation (or was it Al Gore’s?) of networked thingamajigs…
- Leading and Other Indicators: Time to Hike? –NFTRH.com
- Intel Has Massive Plans for its 7-Nanometer Processors –Ashraf Eassa
- The US is on the Fast Track –Dr. Ed
- Not China’s Alone –StealthFlation
- It’s Someone Else’s Money –Jeff Saut
- Great Expectations –Market Anthropology
- Real Time Stock Indices Futures –Investing.com
- 5 Things Everyone Will be Talking About Today –Bloomberg [biiwii comment: really?]
What I mean by the title of this post is that the central-bank tightening that almost always precedes an economic bust is never the cause of the bust. However, it’s a fact that economic busts are indirectly caused by policy mistakes, in that policy mistakes lead to artificial, credit-fueled booms. Once such a boom has been fostered, an ensuing and painful economic bust becomes unavoidable. The only question is: will the bust be short and sharp (the result if government and its agents stay out of the way) or drag on for more than a decade (the result if the government and its agents try to boost “aggregate demand”)?
The most commonly cited historical case of a policy mistake directly causing an economic bust is the Fed’s gentle tap on the monetary brake in 1937. This ‘tap’ was quickly followed by the resumption of the Great Depression, leading to the superficial conclusion that the 1937-1938 collapse in economic activity would never have happened if only the Fed had remained accommodative.