Big GDP Miss: 2.2% Vs Expectations Of 2.5%, Composition Even Uglier
So
much for the +3.0% GDP whisper number. Instead of printing at the
expected number of +2.5%, the first preliminary GDP data point (two more
revisions pending) came out at 2.2%, a big disappointment for a
quarter which had a substantial boost from the weather. And while of
the 2.2%, Personal Consumption came in strong - as expected, as it was
precisely the factor most impacted by pulling in demand forward
courtesy of "April in February", 0.59% of the 2.2% was an increase in
inventories, something which was not supposed to happen as it means
that the quality of the economic growth in Q1 was far worse than
expected. Cementing the ugly composition of Q1 GDP was fixed investment
which added just a paltry 0.18% - this is the number which is critical
for ongoing cashflow generation and unfortunately, the very low print
means that growth outlook for Q2 is now even worse than before and we
expect economists will promptly trim their already bearish predictions
for Q2 GDP. Finally, government "consumption" subtracted just 0.6% from
the total number, a decrease from the 0.84% in Q4, which means that
once again the government is starting to become less of a detractor to
growth - a dagger in the heart to anyone who claims there is "quality"
in GDP growth. And the number you have all been waiting for: At March 31, US Debt/GDP was 100.8% Art Cashin On The Fed, The Election, And The Collapse Of The Euro
The
other Chairman (of the fermentation committee) provides his unique
color on the market's ability to shrug off the terrible news of the last
few days thanks to the lesser-Chairman (of the Fed's) commitment to 'catch us if we fall' which has extended this rally for its fourth day-in-a-row so far.
Critically UBS' Art Cashin opines on the tension between an entirely
independent Fed and the pending election and the somewhat shocking
statements from European Parliamentary President Schulz on the possible
collapse of the European Union.Europe - You Are Here
Between
credible and non-credible political and fiscal policies and a
reflationary or deflationary monetary policy aimed at the financial
system, Morgan Stanley provides a quick-and-dirty 'map' of where Europe finds itself and the four different scenarios that await this troubled region.
The 'Quantum Leap' of credible fiscal integration with term liquidity
support and even easier monetary policy is where everyone hoped we would
be by now (especially post the October 26th Grand Plan decisions).
However, the sad truth in reality is the drop in credibility of
political will (or direct nationalism emerging) combined with some
concerns over inflation and the dramatic fading of the liquidity impact
of the ECB's latest actions means we are drifting rapidly towards 'Debt Crisis Derailment' as the elite continue to confuse insolvency and illiquidity
and stick their heads in the sand with regard the reality they face
under the restrictions of Maastricht. With implicit monetary conditions
dramatically easy and peripheral banks over-stuffed with sovereign
debt, there is little room for anything but more encumbrance or
ECB-Treaty-busting direct printing (which is the rumor floating all
boats this morning).Today’s Items:
Within the EU, with the exception of
Germany, the long-feared credit crunch has mutated instead into a
collapse in demand for loans. Households and firms are comatose, or
scared stiff about taking on any more debt. For example home loans fell
70% in Portugal and 44% in Italy. Unlike Japan, this will not just be a
lost decade for the EU, it will be a collapsed financial system. As
demands continues to drop, the final crash will not be far off.
With sources cited, jobless claims are
posted, then a week later they are revised upwards. It may be 1-2
thousand or it may be 15,000 as in January. Of course these are
seasonally adjusted numbers and one can expect that manipulated number
to be revised upward more later on. Why else would Sugar Daddy Bernanke
have felt confident to predict unemployment below 8% by the end of the
year?
Next…
5 New Lies That The Federal Reserve Is Telling The American People
http://theeconomiccollapseblog.com
5 New Lies That The Federal Reserve Is Telling The American People
http://theeconomiccollapseblog.com
1. The labor market has improved.
2. The U.S. economy is going to experience solid growth.
3. We can expect low inflation
4. The Fed has a 30 year reputation for keeping inflation low
5. We should trust that the Fed will do anything to support the U.S. economy.
2. The U.S. economy is going to experience solid growth.
3. We can expect low inflation
4. The Fed has a 30 year reputation for keeping inflation low
5. We should trust that the Fed will do anything to support the U.S. economy.
Washington, desperate to fix the $16
trillion debt, is eying the $18 Trillion in 401K accounts. One way, is
to no longer allow employers to get a tax deduction for their part in a
401K plan. If this is done, then hypothetically, it will increase
government revenues by $458 billion. Of course, as things get worse, one
can expect the nationalization of 401K’s for National Security.
The Spanish company SCYTL, associated
with George Soros, will count overseas votes. Votes, in this system are
downloaded to the company server, leaving no traceable record of voting,
and then a manipulated count can be sent to a vote counting authority.
The U.S. economy is becoming so vibrant
that illegals are looking for the door out. Mexican-born population in
the United States decreased from 12.6 million in 2007 to 12.0 million in
2010. Mexico’s GDP, despite the gang wars, has grown faster than the
U.S. — 5.5 percent in 2010 and 3.9 percent in 2011. The question is,
will Mexico, in the near future, treat illegals from the North as the
U.S. treated illegals from the south?
This is what happens when the market is
not setting prices. government workers, like Michigan teacher Terri
List, think they deserve to retire at 47 years old. Her rational for not
working is to allow lower paid government workers to come in and save
the government money. Where does her retirement come from? The
taxpayer.
Postal Service bill faces roadblocks
Eric De Groot at Eric De Groot - 28 minutes ago
Delay and rescue is inevitable as austerity is the driving force behind
changes in leadership. Headline: Postal Service bill faces roadblocks
WASHINGTON (CNNMoney) -- A Senate bill passed this week to rescue the
indebted U.S. Postal Service is drawing fire from key agency officials and
House Republican leaders. And it's looking increasingly unlikely that the
House and Senate will agree on...
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content, and more! ]]
The Battle Between Paper Supply and Physical Demand Intensifying
Eric De Groot at Eric De Groot - 1 hour ago
I would like to share a brief exchange I had yesterday with Jim. JIM: The
COMEX will violate their contract before they allow a squeeze. That is
CERTAIN ERIC: Isn't that tantamount to saying there's no way we can
delivery on any of the outstanding contracts? Sounds like John Law shell
game to me. JIM: Be assured. it will happen. ERIC: I have no doubt. The
third count turned...
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content, and more! ]]
Spain Cut by S&P for 2nd Time This Year on Banks, Economy
Eric De Groot at Eric De Groot - 3 hours ago
The fifth largest economy in the Euro Zone is contracting again. The IMF
raised $420 billion to be thrown at Europe, including Spain, that continues
to chant "we don't need rescue fund." Lehman Brothers and Bear Sterns said
the same thing in 2008. Too bad Spain simply cannot print money as a
solution to its problems. "Spain's budget trajectory will likely
deteriorate against a...
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content, and more! ]]
A Trend Is More Important Than A Single Data Point
Eric De Groot at Eric De Groot - 3 hours ago
Yesterday's durable good report revealed that real business core spending slowed to 1.2% year-over-year (yoy). This annual gain, the slowest reading since March 2010, represents a continuation of an up trend deceleration that began in August 2010. The last time real business core spending turned into negative was January 2007. Several months of negative chop and slow trend deterioration... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]
Chart Of The Day: Change In Q1 American Debt And GDP
Presented
without much commentary, because little is necessary: the only ratio
that matters for the US economy, the change in US public debt ($359.1
billion) and US GDP ($142.4) in the first quarter, hit 2.52x and
rising.It takes $2.52 in new debt to increase $1 of GDP.
The New Drug of Choice In The White House, Federal Reserve and Treasury: Delusionol (tm)
Inside sources are reporting that there's a new drug of choice circulating in the hallways of power--the White House, Federal Reserve and the Treasury Department--and it's a perfectly legal prescription psychotropic: Delusionol (tm). Delusionol works by activating the parts of the brain that replace cognition and reasoning with positive fantasies. For example, a driver on Delusionol might run over a person in a wheelchair, bounce off a fire hydrant and send a baby carriage hurtling into a brick wall, and they would be happily convinced that they were an excellent driver. Now you understand why Delusionol is being gulped in vast quantities in the halls of power: the guys (and yes, it's mostly guys) really want to believe the "economic recovery" they've been hyping, and since it's rationally preposterous, they need a drug to suppress recognition that their policies have only made the financial disease worse and stimulate a delusional belief in the fantasy of "recovery."Thirteen Years Later
There have been many grand experiments in social engineering during the past several centuries. We have witnessed the American Revolution, the French Revolution, the American Civil War, Communism and finally 1999 and the founding of the European Union. It is an interesting exercise to consider the long view as I have wondered what the world looked like in 1789 which was thirteen years after the commencement of the American experiment. It seems then historically that thirteen years after America began we were in a process of formation and working towards national goals as a coalition of individual States while we find the European Union, thirteen years after its inception, following quite a different route. May 6 may mark the date when the sleeper finally awakens as Greece and France may both vote in such a manner as to significantly change the political landscape on the Continent. We submit that we are quickly coming to a major reversal in both equities and in credit/risk assets and that instead of being aggravated that it took so long that you should be thankful that you had the luxury of time to prepare for it.The Truth About Egan-Jones
... but not from us: after all we are known for being biased, which in the mainstream media parlance means calling it like it is. No - instead we leave it to none other than Bloomberg's Jonathan Weil who does as good a job of being "biased" as we ever could: "Egan-Jones, which has been in business since 1992, could have continued operating as an independent publisher of ratings and analysis, not subject to government oversight or control. Instead it chose to play within the Big Three’s system, exposing itself to regulation and the whims of the SEC in exchange for the government’s imprimatur. Now it’s paying the price." And not only that: as the most recent example of Spain just shows, where Egan Jones downgraded Spain 9 days ago and was ignored, but well ahead of everyone else, only to be piggybacked by S&P, and the whole world flipping out, it has become clear: calling out reality, and the fools that populate it, is becoming not only a dangerous game, but increasingly more illegal. Then again - this is not the first time we have seen just this happen in broad daylight, with nobody daring to say anything about it. In fact, this phenomenon tends to be a rather traditional side-effect of every declining superpower. Such as the case is right now...The Sell-Side Take On The Tepid GDP Growth
Relative to their positively exuberant +2.7% GDP growth expectation, Goldman opines on the below consensus print for today's Real GDP growth. The composition of growth was seen as weak, with a larger add from inventories and less momentum in domestic final sales than they had expected. There is a silver-lining though as they suggest the weakness in national defense spending that explained part of the miss will possibly reverse next quarter (or not we hesitate to add). BofA adds that the strength in consumer spending and contribution from motor vehicle output look unlikely to repeat in future quarters. Auto production added more than a percentage point to growth. At least half of that is due to the recovery from Japan supply chains and is not sustainable. Outside of autos, GDP growth would have been just 1.1% - thank goodness for all that channel-stuffing.UMich Confidence Beats But Current Conditions Drop Most In 8 Months
The
University of Michigan Consumer Confidence headline data beat
expectations and rose to its highest level since February 2011. However,
the somewhat surprising drop in 1-year inflation expectations (to
four-month-lows) and drop in Current Economic Conditions index to
four-month-lows that underlies less exuberance. Perhaps it is
the fact that this current economic conditions index dropped by its
largest amount in eight months that is fading equities.Previewing Today's Q1 GDP Print
In 45 minutes we will get the first unrevised big picture look of how the US economy did in the record hot weather-boosted first quarter of 2012. Consensus is looking for a +2.5% print, although according to some preliminary analysis, the weather, which simply pulled "demand" forward, may have resulted in an up to 30-40% increase in the baseline print. Whether or not that is the case depends on the flow through Q2 data, which so far has been quite horrible as we showed yesterday, but far more importantly, on how much debt the Treasury issues, as when one cuts out the noise, the only thing that does matter for "growth" is what the net re-leveraging in the system is. Everything else is mostly weekly BLS BS that only serves to increase the general level of Schrodingerian confusion. Anyway, for those who enjoy observing the trees and ignoring the forest, here is a preview of what to expect today, first from Bloomberg and then from Goldman.
Overnight Sentiment: Zen-like After Initial Revulsion
Futures are unchanged after dropping steeply overnight following the Spanish re-downgrade as the Italian 5/10 year bond auction was bad, but still passed (somehow the lack of the European bond market ending is good news). This is ironic with Europe very much on edge following the release of very disappointing EU data, with German confidence, French consumer spending, Spanish unemployment all worse than estimates. Offsetting all of the negativity to some extent is the gross JPY10 trillion and net JPY5 trillion injection by the BOJ, which is a harbinger of what will happen west of Japan when push comes to shove. And so now all eyes turn to US GDP, which, continuing the Constanza bizarroness, better miss for stocks to surge, as a beat of consensus of 2.5% will mean the Chairman was not joking when he told the world he was morphing from a dove to a hawk (if only for theatrical purposes).Frontrunning: April 27
- Hollande Says Germany Can’t Make Europe’s Decisions Alone (BBG)
- Monti Hits at Eurozone Austerity Push (FT)
- Firm that made loans to Chesapeake CEO defends them (Reuters)
- Bo Xilai's Son Doesn't Drive a Ferrari. He drives a Porsche (WSJ)
- Geithner Urges China to Loosen Hold on Finance System (BBG)
- and yet... Son of Bo Xilai Says Father’s Ouster ‘Destroyed My Life’ (BBG)
- U.S. growth slows as inventory accumulation wanes (Reuters)
- S&P 500 Dividend Payers Climb to Highest in 12 Years (BBG)
- Lacker Sees Fed May Need to Raise Rates in Mid-2013 (BBG)
- Ireland Passes Latest Bailout Review (WSJ)
Italy Sells 4, 5, 7 And 10 Year Bonds: Yields Jump, Bids to Cover Slump: Market Commentary
While Europe is still keeping up a facade that all is well in the aftermath of the Spanish downgrade, but far more importantly its sheer economic collapse as noted earlier, just so Italy could price €4.916 billion in two On The Run 5 and 10 year bond issues (compared to a target of €5 billion), the tension is there, as can be seen in a decidedly week Italian bond auction, which saw yields soar, Bids to Cover slide, and tails spike. Italy also sold less than the maximum in off the run 2016 and 2019 bonds. All in all, while the market may experience a brief recovery rally that Italy managed to sell anything at all (that was not a Bill of course - that gimmick always does the trick), the reality that these yields are not sustainable will slowly seep in within a few hours.Spanish Economy Crumbles: Unemployment Nearly 25%
In a week that Spain can't wait to end, the country was just hit with the bad news bears Trifecta, starting with the Real Madrid loss, following with the second S&P downgrade of Spain's credit rating for the year last night (or is that now SBBB+ain?), and concluding with economic data released this morning which showed that the economy is in a free fall that is approaching that of Greece, after retail sales fell for the 21st consecutive month, while Q1 unemployment soared to, drumroll please, one quarter of the working population or 24.44% to be specific, trouncing consensus estimates of 23.8%, and up nearly 2% from the 22.85% as of December 31. Which likely means that the real unemployment is far higher, and confirms not only that the economy is in free fall mode, but that Moody's, which delayed its downgrade of the country's banks to May, will proceed shortly.
BoJ Eases. Einstein Rolls Over In Grave
"It won't be long before CPI is back above 1%",
we promise, this time - we really mean it - is seemingly how the BoJ
defends its decision to follow Einstein's definition of insanity by
doing the same thing over and over again expecting a different outcome
(Nov 2008 was the last time CPI was above 1% YoY). Admittedly, at some
point the ever-increasing BoJ balance-sheet-to-GDP will become too much
even for a nation hell-bent on printing its way out of chronic
deflation only to be punched-and-kicked by a balance-sheet-recession so
deep and full of deleveragers. The facts are that the BoJ will
expand its LSAP-equivalent program by JPY10tn (USD123bn) - raising the
'stock' - but maintaining the same pace of JGB-buying at JPY1.8tn per
month - leaving the 'flow' stable - hence extending the program by
around six months. At the same time they have extended the
maturity of JGB purchases from 2Y to 3Y (try and wring a little more
duration out of an already starved yield curve). USDJPY was entirely
confused out of the gate and rallied immediately only to about-face and
sell-off up to 81.45 before already giving back half of its losses to
pre-BoJ anouncement. The JPY sell-off implicit carry moves did nothing
to move US equity futures (which limped up 1-2pts and then gave it
back) and even the NKY has retraced 65% of its post-BoJ gains.
Perhaps it is all about the flow and the need for that second
derivative to be constantly rising after all? Whether it is repatriation
flows or carry-unwinds, JPY devaluation (as we have discussed Andy Xie's perspective on) may just have to be done 'forcefully' as opposed to 'suggestively'.
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