Welcome to the new recession
Despite the stock market's steadfast resistance to drop, and the Federal Reserve's cheap money, the real economy is succumbing to a new downturn.
It's not fashionable to care about hard fundamentals like corporate earnings or economic data these days. After all, the market seems to care only about cheap money from the Federal Reserve, the Bank of Japan, the Bank of England and the European Central Bank.
That, and ensuring that the Japanese yen continues to weaken against the dollar and the euro, protecting so-called carry trades using the yen as a funding currency to buy U.S. stocks and Spanish and Italian bonds.
But while the market suffers from Ben Bernanke's reality distortion field, the situation on the ground is deteriorating quickly. Nearly 70% of the economic data points released over the past month have missed expectations, up from 53% two months ago and 35% three months ago.
As a result, by some measures, the economy appears to have succumbed to a new recession, invalidating the theory that cheap money solves all problems and casting a pall over the market's recent rise.
Just consider the economic data we've received so far this week. The Chicago Fed regional manufacturing index disappointed. Existing home sales disappointed. The Flash PMI manufacturing activity index disappointed. The Richmond Fed regional manufacturing index disappointed. New-home sales disappointed.
On Wednesday, March durable goods orders suffered their second-largest monthly drop since the 2008 financial crisis as new orders plunged 5.7%. Removing the volatile transportation component, orders still fell 1.4%, building on a 1.7% decline in February. The drop was widespread, hitting metals, machinery and electrical equipment.
Michael Feroli at JPMorgan rates the report a D+, noting it joins a long list of disappointing March data. According to Paul Ashworth, the chief U.S. economist at Capital Economics, it's a sign that the "recovery is losing momentum again." I'll go a step further and say the recovery could very well be over.
It wasn't supposed to be this way. The fiscal cliff and sequestration battles are behind us. The Fed is pumping $85 billion a month into the bond market. The Bank of Japan just pledged to double its monetary base over the next two years. The Eurozone debt crisis is off the front pages.
But as I've been saying for months, none of this addressed the deeper, structural problems such as tapped-out consumers pinched by a slowing job market, higher taxes and lower savings. Or a slowdown in Asia, especially China. Or a deepening recession in Europe, which is now infecting Germany, as illustrated by its abysmal Flash PMI manufacturing activity report Tuesday. Or the fact Congress hasn't finished its budget battles, with $2.5 trillion more or so in additional budget austerity needed over the next 10 years to stabilize the national debt.
The result of all this is that one strong indicator of new recessions, the three-month annualized change in the Conference Board's Coincident Economic Indicators Index, has fallen to levels that marked the beginning of the past three recessions (minus 5% annualized three-month change). The index has four components: payroll employment, personal income, industrial production and manufacturing sales.
The million-dollar question is: How much longer can investors and the market ignore all the signs that something is wrong with the economy? And that it's starting to drag on corporate profitability as well?
I've been too early in my apprehension and bearish stance, to be sure. But each day that goes by only adds more evidence to support my negative outlook. With the Russell 2000 small-cap index trapped in a possible downtrend channel, it's possible the sell-off has already begun. If so, continue to book profits in existing long positions, raise cash and start nibbling at defensive Treasury bond and precious metals positions.
Showing a little more maturity than the equity market, Treasury bonds have been climbing since early March as the economic data turned sour. The iShares 20+ Year Treasury (TLT) is up more than 7% over that time while economically sensitive stocks like Caterpillar (CAT) and US Steel (X) have been hammered.
Disclosure: Anthony has recommended TLT to his clients.
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We have been in a recession, since before 2008. Standard of living for middle class America has been falling long before 2008, and continues to this day.. What you have been seeing, is a corporate owned Government, (both parties) for the last several years, dating back to the nineties.
As far as the market is concerned, it has been propped up, by artificial low interest rates, that are less than the rate of inflation. Without low interest rates, the Dow would be at half, of what it is today.
My issue is that you said this in November, didn't happen. Couple months ago you cited fuel prices as a big issue for sagging this economy but now they are headed downward again with most analyst predicting that trend will continue.
Anthony, when you write stuff like this:
"It's not fashionable to care about hard fundamentals like corporate earnings or economic data these days"
it just makes you sound arrogant.
After all, there are plenty of smart folks who disagree with you about the fundamentals of equity markets.
Many companies have figured out how to survive and thrive in a flat or slow-growing economy. They have cleaned
up there balance sheets since the turmoil of 2008.
I don't find stocks to be particularly over-valued right now. Fairly valued, perhaps.
Try a little humility and maybe foks won't pick on you so much.
I would suggest that people read the info. that is always posted at the bottom of Anthony's commentary...."You can view his current stock picks ." Anthony's picks aren't just bleeding, they are hemorrhaging money. These results speak much louder to me than any daily commentary.
Just keep shorting the market Anthony and you will soon lose all your money and crftedibility!
Did you not read that 68% of companies reporting beat estimates?
Thank you for being an excellent reverse barmeter
I am sick of the Conservatives blaming Liberals and the the Liberals blaming Conservatives BS that goes on. The fact is simple both sides have gotten us into this mess.
Fact, Clinton and the Democrats and Republicans pushed for the changes to the Banking Regulations in 1998. These changes are what allowed the banks to get "Too Big To Fail". Clinton weakened the SEC so that large companies did not have proper over site regarding how the books of these business were being kept. Do the names Enron and WorldCom ring any bells? Clinton was the President that required the Banks and FANNY and FREDDIE to give loans with zero down to people who could not afford to make the payments. Clinton was too busy sticking the interns to know what he was really doing.
Fact Bush was never a great lead of people. He did not understand what was happening with economy and therefore could not take steps to change anything. Lets not forget that the Democrats controlled both the house and senate and would not allow any changes to the Clinton Plan.
Fact Obama makes Bush look like a great lead of people. He can't bring both parties together and work out a deal on any topic.. The ability to get both parties to come together and reach an agreement is the one thing that made both Reagan and Clinton successful. We are 5 years into the Obama Plan and things have not improved.
The time has come for all voters to take off their blinders and start holding all of government accountable for their actions.
We are still caught in a Death Spiral of Lost Jobs and an ever weaker and weaker economy.
First most of the new jobs in the past 5 years now have been minimum wage jobs and the jobs lost have been $80,000 plus jobs. Hard to grow the economy when you are losing two $80,000 plus jobs for every one $14,000 a year worker. You are having a net loss of about $150,000 times 1,000,000 workers in income at the below the 1 percenters level. Yet the income loss appears to be an income gain as the 1 percenters are doubling their income every 5 years now.
Second the stock market is merely kept up by Bernanke's printing of fake money. The situation here is grim frist you have 10,000,000 baby boomers retiring each year taking out $30,000 to $50,000 a year to live on vs putting $5,000 a year into the stock market. Next you have the lost $80,000 to $120,000 people who were putting about $10,000 a year into the stock market they are replaced with $14,000 a year people who are not putting anything into the stock market.
Hence the $85 billion a month that Bernnake is trying to keep the stock market and US bond market up with. It is a loss cause as the money needed to keep prices up increases each month that goes by. Soon to out strip Bernanke's ability to print money. (Note: Bernanke will soon be constricted in the printing of money when the US losses world currency status within about 5 months now sooner if the US and Israel attack Iran in June as planned).
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