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"Who controls the food supply controls the people; who controls the energy can control whole continents; who controls money can control the world" - Henry Kissinger

and yet...

"Sooner or later everyone sits down to a banquet of consequences" – Robert Louis Stevenson

Central Banks jawbone another 'rally'

In response to an FT article by Robin Wigglesworth on 30th October 2015, entitled 'Central Bank action spurs October equity rally'

A few counterpoints:

a) Casino chips have to go somewhere, and currently they are at record leveraged highs - this is 'buy the dip'. It will continue until the narrative changes. The Fed's jawboning is an attempt to distract investors from fundamentals and keep alive the belief that they are in control - clearly they are not

b) Fundamentals are flimsy as indicated by reduced revenues and share-buy backs that will seem 'criminal' when the downturn comes and the next CEO is left with a wrecked balance sheet that will take years to repair

c) Many of the earnings 'beats' are as result of a well worn strategy from the 'analysts': lower the estimate, lower the estimate, lower it some more, hey presto...'better than expected!'.

d) The growth in employment largely consists of part-time, low wage jobs. Many employers have hired 3 people at 10 hours, rather than 1 person at 30 hours - in order to avoid the necessity of offering Obamacare. These jobs are easier to shed in a downturn, and so, as usual the elevator down will be quicker than the steps up

The Fed narrative is to continue to jawbone the market because they have backed themselves into a corner. If they raise rates and the zombies start to keel over, the whole theatre heads for the exit. If they don't raise rates the 'confidence' game will be revealed as the 'con' that it is. 

Sooner or later, the herd will turn and when it does this 'recovery' will be exposed as the chimera that it is.

Finally, here are a few measures that were released this week - which, as usual, did not make it through the 'support your central planner' media screening process. The data is from Bloomberg:

1. Dallas Fed Manufacturing Survey (released Monday) - "Contraction for the general activity index deepened to minus 12.7 in the October report from September's minus 9.5. This is the 10th negative reading in a row. New orders are now negative for a 12th month in a row, at minus 7.6, while unfilled orders are on a similar streak, at minus 3.1"

2. Durable goods (released Tuesday) - "The factory sector is showing cracks with orders contracting slightly more than expected, down 1.2 percent in September with August's contraction revised lower to minus 3.0 percent"

3. MBA Mortgage applications (released Wednesday) - "Purchase applications slipped 3.0 percent in the week with refinancing applications down 4.0 percent"

4. Consumer Comfort Index (released Thursday) - "Consumer spirits appear to ebbing a bit with the consumer comfort index down for a second week, at 42.8 in the October 25 week vs 43.5 and a peak of 45.2 in the prior two weeks. Tuesday's consumer confidence index also came down as has the consumer sentiment index, all from recovery bests posted earlier in the year. The lack of recent strength does not point to improved payroll growth nor to acceleration for household spending"

5. Pending Home Sales Index - (released Thursday) "The outlook for the housing sector has turned lower this week, first on Monday's very weak new home sales report followed by today's September index on pending sales of existing homes which is down a very sharp 2.3 percent...Year-on-year, pending sales are up only 3.0 percent which is very weak and far below the nearly double-digit pace for final sales of existing homes. All regions show low to mid single-digit declines in the month"

In the long shadow of the great recession a recovery is under way...says Martin Wolf

Hands off the BBC!