For the fourth quarter in a row, CEO expectations on the economy remain mixed.
CEO expectations for
Sales over the next six months increased by 8.5 points, and
Their plans for capital expenditures increased by 7.1 points, relative to last quarter.
Hiring plans declined by nearly 10 points from last quarter.
Mixed Bag Not
Is that an ominous report or a mixed bag? On the surface one can make a claim either way. The business outlook is up huge as are capital spending expectations. However, CEOs are clueless about where the economy is headed.
Notice the perpetually lagging nature of the CEO Economic Outlook. GDP is a lagging indicator. The aggregate CEOs’ economic outlook is even more lagging. That’s quite a pathetic under-performance.
Jobs are also a lagging indicator.
Battle of Lagging Indicators
In the battle of lagging indicators, results show the CEO hiring index was amazingly coincident with nonfarm payrolls from 2003 until late 2012.
The newly created Obamacare health insurance marketplaces opened for enrollment on October 1, 2013.
Starting 2014, citizens were required to have insurance.
Businesses with 50 or more full-time employees had to offer insurance benefits to their employees.
Obamacare reduced the number of hours to 30 that it took to be considered a full-time employee.
Employers cut hours and hired more part-time workers.
The hiring binge associated with Obamacare is finally over.
US job growth will “unexpectedly” slow dramatically now that CEO hiring plans have weakened to the point of contraction.
Talk of rate hikes will morph into talk of easing.
The US dollar will sink further.
Gold, not the stock market, will be the big beneficiary of this “unforeseen” jobs weakness.
While the YoY change rose from +3.0% to +3.1%, it remains below historically-recessionary levels and given the revisions suggests Q1 GDP growth markdowns are on their way with sales down MoM for every cohort from gas stations to furniture.
Retail Sales down most in a year:
And YoY changes still at weak recessionary levels...
And the breakdown shows sales dropped across the board, with all the key segments, including the all important online sales, posting sequential declines:
Motor Vehicles: -0.2%
Furniture and Home Furnishing: -0.5%
Food and Beverage: -0.2%
Gasoline Stations: -4.4%
General Merchandise: -0.2%
Online Sales: -0.2%
MACRO News Items of Importance - This Week
GLOBAL MACRO REPORTS & ANALYSIS
US ECONOMIC REPORTS & ANALYSIS
CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES
Dispelling any confusion about who the relentless buyer into the "wall of worry" is, this is what Bloomberg wrote:
Demand for U.S. shares among companies and individuals is diverging at a rate that may be without precedent, another sign of how crucial buybacks are in propping up the bull market as it enters its eighth year. Standard & Poor’s 500 Index constituents are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007. The buying contrasts with rampant selling by clients of mutual and exchange-traded funds, who after pulling $40 billion since January are on pace for one of the biggest quarterly withdrawals ever.
We got the latest confirmation of this earlier today when Bank of America said that "clients don’t believe the rally, continue to sell US stocks" to the only buyer left in town: "buybacks by corporate clients accelerated for the third consecutive week to their highest level in six months, which is also above levels at this time last year. This suggests that overall S&P 500 completed buybacks—which are reported with a lag—have likely picked up significantly as well."
This also explains why the ECB was so desperate to unclog, and explicitly backstop with its QE expansion, the suddenly slowing corporate bond market: without a fresh influx of new IG issuance, the buyback pipeline would be indefinitely halted, which in turn would have led to more stock selling without offsetting repurchases, further downside to credit, and so on in a feedback loop that would have required a forceful intervention by central banks.
However, while buybacks have been raging for the past three months, there is a very real and imminent danger to the market torpid bear market rally, when the first quarter earnings season begins over the next few days and brings with it the infamous buyback "blackout period."
"The closing of the buyback window ahead of earnings season has recently coincided with weaker S&P 500 performance. In half of the last eight quarters, the S&P 500 declined during the four weeks prior to earnings season. The S&P 500 rose an average of 0.3% in the month leading up to earnings season versus +1.6% both during earnings season and in the month following earnings season.
Indeed, over the past 4 quarters, the buyback blackout has without fail led to weakness across risky asset classes. So with the start imminent, how long is the lack of price indescriminate buying expected to persist? At least until the first week of May when the buybacks resume:
So while everyone's attention is on the Fed, the biggest danger to the S&P500 has little to do with what Janet Yellen may say tomorrow, and everything to do with the marginal buyer of stocks being put into a state of forced hibernation: after all, corporations would want nothing more than to continue the rally without pause, as a surging S&P 500 would make it even easier to issue more debt, which in turn would be used to fund even more buybacks, push their stocks even higher, and lead to even greater "equity-linked" bonuses and compensation.
What is curious, however, is that unlike a year ago, when Goldman was pitching its "basket of US stocks focused on returning cash to shareholders via buybacks and dividends", this time Kostin and Co. are far more reserved, and instead urging clients to shun these companies which are largely drowning in debt as per the chart below, showing the highest corporate leverage in over a decade...
... and instead to buy companies with "strong balance sheets" which by definition are those who dedicate far less debt to pushing their stock price higher via such artificial and unsustainable gimmicks such as buybacks.
Will this time Goldman be right, or will the trade once again be to buy the more beaten down names over the next month, those whose buybacks are "brutally" put on hold, only to return with a vengeance come May?
We'll find out in 6 weeks; in the meantime, beware the S&P 500 Ides of March starting today, and lasting until Q1 earnings season is over.
COMMODITY CORNER - AGRI-COMPLEX
THESIS - Mondays Posts on Financial Repression & Posts on Thursday as Key Updates Occur
FRA Co-Founder Gordon T.Long and Jeffrey Snider, Head of Global Investment Research at Alhambra Investment Partners discuss a broad array of Global Macro subjects in this 48 minute video discussion with supporting slides.
As Head of Global Investment Research for Alhambra Investment Partners, Jeff spearheads the investment research efforts while providing close contact to Alhambra’s client base. Jeff joined Atlantic Capital Management, Inc., in Buffalo, NY, as an intern while completing studies at Canisius College. After graduating in 1996 with a Bachelor’s degree in Finance, Jeff took over the operations of that firm while adding to the portfolio management and stock research process.
In 2000, Jeff moved to West Palm Beach to join Tom Nolan with Atlantic Capital Management of Florida, Inc. During the early part of the 2000′s he began to develop the research capability that ACM is known for. As part of the portfolio management team, Jeff was an integral part in growing ACM and building the comprehensive research/management services, and then turning that investment research into outstanding investment performance. As part of that research effort, Jeff authored and published numerous in-depth investment reports that ran contrary to established opinion. In the nearly year and a half run-up to the panic in 2008, Jeff analyzed and reported on the deteriorating state of the economy and markets. In early 2009, while conventional wisdom focused on near-perpetual gloom, his next series of reports provided insight into the formative ending process of the economic contraction and a comprehensive review of factors that were leading to the market’s resurrection. In 2012, after the merger between ACM and Alhambra Investment Partners, Jeff came on board Alhambra as Head of Global Investment Research.
Jeff holds a FINRA Series 65 Investment Advisor License.
US TIC REPORT, TREASURY SALES
TIC is a compilation done by the US Treasury based on their access to data on foreign accounts and holdings of Dollar accounts and securities, and estimates the foreign Dollar market. Over the last decade or so, it is clear that the Eurodollar market grew steadily at a rapid rate until about August 2007, at which point it pivots and comes back down. The TIC data shows the tendency of dollar markets to essentially be stable, usually addressed through selling Treasury. However, the private dollar markets offshore are in disarray to the extent that central banks around the world are forced to fill the dollar deficiency with their own holdings. Of especial note is China’s reduction of their US Treasuries and foreign currency reserves, and OPEC countries incurring serious Current Account deficits in an attempt to maintain their pegs with the US dollar. In addition are the emerging markets who borrowed about $7-9T in USD, who now have difficulty paying back debts due to slowing trade and falling currencies.
This all leads to the US dollar strengthening, which is the manifestation of the dollar shortage. In recent days, Japan using NIRP will further disrupt the dollar system.
“US Dollar Strength is a manifestation of a US Dollar Shortage!”
JAPAN: QE FAILURE AND WHAT NIRP MEANS
Under QE, Japan obtained a burst of inflation around 2014. Instead of leading to sustained economic activity, household income and spending dropped about 7%, which was also not offset by growth in GDP and demand. The surge in expansion, due to cheaper money, increases supply which then demolishes pricing power. In addition to the reduced value of savings, large companies have also shifted production offshore, thus increasing the effect and emphasizing the failure of QE/QQE to stimulate the economy.
NIRP also carries with it the threat of failing like QE, along with numerous other particle effects that cannot be currently measured or predicted, mostly as this type of system has not existed for over a hundred years. This is an indicator of the lack of power central banks have over the economy, but can be put down to overemphasizing the value of monetary policy over fiscal policy in the developed world. The dollar system has been artificially expanded past any control by banks and monetary policy, globally, over the last decade. The only way to stop it is to focus on other fiscal factors that would allow economic potential to be realized again and to refrain from following Keynesian economics once it has been proven to be ineffective.
“Japan is a test case in almost clinical conditions for QE and QQE, and it failed on every count.”
CHINA: COLLAPSING TRADE AND CREDIT
China is both an impediment to growth and a casualty of the rest of the world, but recently more of a reflection of the global dollar economy as they are most sensitive to changes there. The lack of growth over several years forces a fundamental shift toward a Keynesian response of fiscal and monetary stimulation that creates asset buffers at odds with overcapacity. Meanwhile, China still lacks any real method for economic growth and is forced to react to outside influences while juggling the problem of overcapacity with the falling export industry. This then leads to capital flight, which furthers the struggle to grow GDP.
China is clearly attempting to manage the Yuan by selling dollars to strengthen it, but will eventually falter like any pegged currency. Many currencies pegged to the US dollar, Eurodollar, and Petro dollar will likely collapse. Keynesian economists believed that 2007 was the beginning of a temporary deviation from sustainable global growth, but was in fact the structural revaluation of higher economics of the financial system. We are likely headed for a systemic reset and reorientation, which will be disruptive with significant risk but can be adapted to.
“I think we are headed for a systemic reset.”
RETAIL: JANUARY SALES AND CONTINUING TREND
Retail sales have been near recession levels of low, indicating that consumers are under pressure, but inventories are still rising despite manufacturers cutting back. Retail slowing is a fixed trend starting from 2012, amplified in 2014-2015 with the disappearance of the manufacturing industry and loss of export goods. This is likely due to lack of real recovery that slowly eroded US consumers’ ability to continuously expand their activity. The middle class has no savings, so thus the capitalist system that relies on savings to reinvest into productivity.
Over the last several years, companies have been spending on buybacks instead of investing in productive capacity. 1900 of the S&P companies spent more on buybacks and dividends than they were earning, thus creating more debt.
“Recession is a necessary process, like anything else. It’s creative destruction.”
LABOR: FULL EMPLOYMENT – NOT REALLY!
There is a major disconnect between major unemployment statistics and the rest of the economy, where even having a job is not necessarily enough to support the expected standard of living. There are low prospects for growth in the job market, and people sense that there is a need for a restructuring of the system. Job growth is mostly in low income occupations, which results in potential workers entering college with a loan but failing to actually enter the labour force.
The current economic state is similar to the suppressed state of the 1930’s and 1940’s, and once the systemic reset is allowed to occur, the economic potential released will be tremendous. Recessions are necessary to allow risk to be properly priced, which in turn creates confidence in investment. The resulting reset should shift away from one centered around banks and the value of credit toward a capitalist system that prioritizes “money is money” over “money is credit”.
“Monetary policy is designed for companies to borrow more; it’s just that economists expected they’d borrow more for productive capacity rather than financial capacity.”
Abstract by: Annie Zhoua: firstname.lastname@example.org
Video Editing by: Minjung Kim: email@example.com
Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.
THE CONTENT OF ALL MATERIALS: SLIDE PRESENTATION AND THEIR ACCOMPANYING RECORDED AUDIO DISCUSSIONS, VIDEO PRESENTATIONS, NARRATED SLIDE PRESENTATIONS AND WEBZINES (hereinafter "The Media") ARE INTENDED FOR EDUCATIONAL PURPOSES ONLY.
THERE IS RISK OF LOSS IN TRADING AND INVESTING OF ANY KIND. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
Gordon emperically recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, he encourages you confirm the facts on your own before making important investment commitments.
Information herein was obtained from sources which Mr. Long believes reliable, but he does not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities.
Please note that Mr. Long may already have invested or may from time to time invest in securities that are discussed or otherwise covered on this website. Mr. Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or recommendation you receive from him.
FAIR USE NOTICEThis site contains
copyrighted material the use of which has not always been specifically
authorized by the copyright owner. We are making such material available in
our efforts to advance understanding of environmental, political, human
rights, economic, democracy, scientific, and social justice issues, etc. We
believe this constitutes a 'fair use' of any such copyrighted material as
provided for in section 107 of the US Copyright Law. In accordance with
Title 17 U.S.C. Section 107, the material on this site is distributed
without profit to those who have expressed a prior interest in receiving the
included information for research and educational purposes.
If you wish to use
copyrighted material from this site for purposes of your own that go beyond
'fair use', you must obtain permission from the copyright owner.