Pronounced, Pervasive, Persistent. Data and Markets Reflect Economic Weakness/Stress.

 

Cycle experts disagree with the Fed

Pronounced, Pervasive, Persistent weakness in the data

Latest data shows weakest ex-auto retail sales for 6 years

Markets reflect economic weakness too

Globally, including the US, stock markets are not doing well.

New 5 year low in China’s currency this morning

New 6 year high yield in US CCC or below credits this week

Yesterday, Third Avenue mutual fund company suspends withdrawals from its junk bond fund.

Commodities still trending lower below even 2009 lows

Conclusion – the Fed’s tortured logic

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Cycle experts disagree with the Fed

In the coming week the Fed has prepared market expectations for the end of 7 years of zero interest rates.

However, a long list of investors/analysts with established track records of reading economic cycles very accurately have already called the timing of a rate rise misguided. Among these are Jim Rickards, Richard Duncan of Macrowatch, Ray Dalio of Bridgewater, Keith McCullough of Hedgeye, and Lakshman Achuthan, Chief Research Officer at ECRI.

Pronounced, Pervasive, Persistent weakness in the data

Lakshman Achuthan described the situation very well this week on Bloomberg TV:

https://www.businesscycle.com/ecri-news-events/news-details/economic-cycle-research-ecri-interview-pt-1-cyclical-slowdown

Parts 2 and 3 are available in the top right of the linked page.

To most of the cycle watchers listed above the economic cycle direction could hardly be any clearer. Lakshman Achuthan describes the signs of a slowing economic cycle as Pronounced, Pervasive and Persistent. This means that next weeks Fed decision, if they follow through could be a major policy error.

Perhaps this is just what one should expect, from past experience we discover that

“not a single major central bank could provide an example of an accurate “a priori” recession forecast”

http://www.zerohedge.com/news/2015-12-08/has-fed-ever-accurately-predicted-recession

So central banks are biased for optimism. Just as well because the data still kept pouring in on the negative side.

Latest data shows weakest ex-auto retail sales for 6 years

1215nominal retail sales card_0

“To sum up: retail spending is now negative, and one can add deflation on top. Can someone please explain to us again just what “data” the “data” dependent fed is looking at, because we are lost.”

http://www.zerohedge.com/news/2015-12-09/credit-card-data-reveals-first-core-retail-sales-decline-recession

http://www.zerohedge.com/news/2015-12-11/retail-sales-growth-tumbles-weakest-6-years-auto-sales-drop

Markets reflect economic weakness too

“Market Experts” on TV don’t seem to analyze what the markets are saying beyond just looking at the S&P 500. Just scratch the surface and a very different picture emerges.

Globally, including the US, stock markets are not doing well.

With the exception of a few big cap US stocks the markets across the world also seem to be reflecting a weak economic environment. The US equity market has rarely seen so many stocks in a confirmed downtrend even while a few big caps are near all time highs. 69% of all listed US stocks in the broadest index, the NYSE Composite, are below their 200 day moving average!  Can this really be called a bull market anymore?

1215NYSEcompstockbelow200

 

This very unusual condition has usually been a medium term sell signal. Here is the record over recent years:

http://www.zerohedge.com/news/2015-12-10/whole-lot-new-lows-market-near-its-high

Globally Ex-US stocks are doing much worse.

1215Worldstocks

 

http://www.zerohedge.com/news/2015-12-05/dozens-global-stock-markets-are-already-crashing-not-seen-numbers-these-2008

New 5 year low in China’s currency this morning

The pressure in emerging markets has become extreme and continues to intensify as just this morning China’s currency hit its lowest level against the dollar since July 2011. This can only add to deflationary pressure in the US.

1215USDCNY

 

 

 

 

 

 

 

http://www.zerohedge.com/news/2015-12-10/china-stealth-devaluation-continues-yuan-plunges-6th-day-default-risk-soars-fosun-bo

New 6 year high yield in US CCC or below credits

Meanwhile in the US bond market credit spreads have been widening to 18 month highs! CCC or below credits hit a new high yield just this week! This is an extreme measure of economic distress. 1215highyield

http://www.zerohedge.com/news/2015-12-09/something-did-blow-junk

Yesterday, Third Avenue mutual fund company suspends withdrawals from its junk bond fund.

http://www.zerohedge.com/news/2015-12-11/which-high-yield-fund-gates-next-after-third-avenue-here-are-unusual-suspects

1215junk spreads

 

 

 

 

 

 

 

 

 

 

 

http://www.zerohedge.com/news/2015-12-03/how-profit-coming-high-yield-meltdown

Commodities still trending lower below even 2009 lows

The signal from commodities could hardly be clearer. No matter what index you choose, it is trending down at a level below the lows of 2009!

1215commodities

Conclusion – the Fed’s tortured logic

“Market Experts” say the rate rise is a done deal. However, no-one ever seems to explain exactly why, at least not to my satisfaction.

This week and for the last several weeks these notes have shown data that consistently contradicts the need for any tightening in policy. Anyone I know with an established track record of success who does primary research does not seem to be able to make the case for Fed action next week.

This week we have also shown that on a wider examination even the markets themselves are not in a healthy condition for tighter policy. Indeed it seems that the Fed is choosing arguably the worst time in the last 7 years to raise rates. Tightening policy at this time could be the worst policy error I have seen in my 30 years of market experience.

Most likely, if they do raise rates next week it will likely be more of a gesture than a strong statement. This seems to be more a matter of presentation and credibility. The Fed desperately wants to claim policy success by for once actually doing what it has promised for 7 years. However, their case is weak at best and they are also running the risk that if a rate rise backfires, they will have done further economic damage, and lost even more of their diminishing credibility.

 

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