Menu Close
Posted in David Stockman

Permabulls Whistling Past The Grave

This is a syndicated repost courtesy of David Stockman's Contra Corner » Stockman’s Corner. To view original, click here. Reposted with permission.

Goldman’s Fed farm team was out in force today peddling some pretty heavy-duty malarkey about the up-coming rate liftoff at the December meeting. Its newly seconded man at the Dallas Fed, Robert Kaplan, reminded that “accommodative policy does not necessarily mean a zero fed funds rate.”

And the B-Dud himself was even more explicit. Speaking to a conference about regulation, the New York Fed head and former Goldman chief economist said,

“If we begin to raise interest rates, that’s a good thing. That’s not a bad thing,” he said during a question and answer session after his opening remarks, which were on financial regulation. “That’s a sign that the economy is actually returning to health, the Federal Reserve is getting closer to achieving our dual mandate objectives of maximum sustainable employment and price stability.”

Excuse me for fumbling for my tin foil hat, but did the Vampire Squid actually just trot out its minions at the Fed to suggest that you buy this rally?

Why, yes it did. The robo-machines were raging in response to the Fed minutes, and that’s a flashing red warning sign if there ever was one.

To wit, Goldman is putting out the final mullet call for this Bubble Cycle because it knows that this bull is dying; that insiders still have massive amounts of stock winnings to unload; and that the clock is fast running out.

The expiring clock is evident in the S&P 500’s one-year round trip to nowhere. Despite the fact that the Fed has ponied-up a stick save at every single meeting this year, the market’s 27 separate efforts to rally have all failed for the simple reason that the jig is up.

That is, we are now in month 83 of zero interest rates and the Fed has pumped $3.6 trillion of fiat credit into Wall Street, but there has been no genuine economic recovery on main street. In fact, the tepid expansion cycle that we have actually experienced is now being extinguished by ferocious headwinds emanating from the deflationary global economy.

That is more than evident in the third quarter earnings results for the S&P 500. Reported LTM profits at $94 per share were down 11% from prior year’s $106 per share, and the slide down the slippery slope has just started.

So the smart money has been steadily “taking profits” with each mini-rip, but now the situation is becoming urgent. Within months it will be evident that the US economy has entered a new recession, while even Wall Street’s egregious manipulation and crafting of ex-items earnings will not be able to hide the epic profit implosion now in motion.

Hence comes today’s ridiculous meme. Namely, the year end rally is at hand, the Fed still has your back and escape velocity is once again just around the bend.
^SPX Chart

^SPX data by YCharts

The truth is, this bull has had an especially hard time expiring because it is on a monetary ventilator and the central bankers have been too petrified to pull the plug.

Yet they have finally just plain run out of excuses. After the tragic events of last Friday, there was even a feeble narrative about the Fed needing to wait for the decks to clear from Paris. But apparently even the most shameless bubblevision stock peddlers thought better—-after a few seconds of reflection—- about the notion of suicidal barbarians being in charge of the US central bank.

So the Fed likely will allow money market rates to rise by a hairs-breadth from the zero bound at the next meeting, but that ain’t because the economy is strong and getting stronger. In fact, business sales have already rolled-over, inventories are soaring and the inventory/sales ratio is practically screaming recession dead ahead.

In the most recent month, total business sales in the US economy—manufacturing, wholesale and retail—–amounted to $1.32 trillion and were down 3.3% from their July 2014 peak.

Not only does this demonstrate that business activity has already deteriorated significantly; it also crystalizes what a farce this so-called recovery has actually been.

Since the July 2008 pre-crisis peak, nominal business sales have only expanded at a 1.1% annual rate. Throw in even a minimal dash of inflation and it is evident that they have hardly grown at all.

By contrast, during the first seven years after the dotcom peak, total business sales expanded at a 5.6% annual rate.

Yes, the Greenspan housing and credit bubble was not sustainable and by prior historical standards was nothing to write home about even then. But we are now at the point where this entire business expansion has been an exercise in treading water, and even those minimal gains are now giving way.

By contrast, what has been growing is business inventories and the inventory-sales ratio. Since the July 2014 peak, in fact, inventories have grown by $52 billion while monthly sales have fallen by $45 billion.

Needless to say, the inventory sales ratio is now at its October 2008 level. It is only a matter of time before production curtailments trigger a downward cycle of economic activity.

Spending for CapEx excluding the volatile aircraft category shows the same pattern. The top was put in more than a year ago—-with new orders down 7% and shipments not far behind.

Wall Street Examiner Disclosure: Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. No endorsement of such content is either expressed or implied by posting the content. All items published here are matters of information and opinion, and are neither intended as, nor should you construe it as, individual investment advice. Do your own due diligence when considering the offerings of information providers, or considering any investment.

Related Posts

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.