Mish's Global Economic Trend Analysis |
- Former Dallas Fed Governor Richard Fisher Goes to Squawk Box Confessional: "We Frontloaded a Tremendous Market Rally"; Transcript of Video
- December US New Car Sales "Down, Exceptionally Weak" Says Bloomberg; WSJ Says Up and Strong
- Diving Into the Revisions: Construction Spending Revised Lower 7 Consecutive Months! 2015 GDP Will Decline vs. Estimates: By How Much?
| Posted: 05 Jan 2016 01:05 PM PST Fed governors sometimes tell the truth, but generally only after they leave office, and always after the damage has been done. In that regard, former Dallas Fed governor Robert Fisher admits "We frontloaded a tremendous market rally to create a wealth effect ... The Federal Reserve is a giant weapon that has no ammunition left." The embedded video will not play in-line, but you can view it on You-Tube by clicking a second time on the notice. Partial Transcript Fisher: What the Fed did, and I was part of that group, we frontloaded a tremendous market rally starting in march of 2009. It was sort of a reverse Wimpy factor. Give me two hamburgers today for one tomorrow. We had a tremendous rally and I think there's a great digestive period that's likely to take place now. And it may continue. Once again, we frontloaded, at the federal reserve, an enormous rally in order to accomplish a wealth effect. I would not blame this [the 2016 selloff] on China. We are always looking for excuses. China is going through a transition that will take a while to correct itself. But what's news there? There's no news there. Squawk Box: I guess the question Richard is: How ugly will it get? If you do see this big unwind of Fed Policy which fueled a 6 and one-half year bull market, what does it look like on the way down? Fisher: Well, I was warning my colleagues, don't go [inaudible] if we have a 10-20% correction at some point. ... These markets are heavily priced. They are trading at 19 and a half time earnings without having top line growth you would like to have. We are late in the cycle. These are richly priced. They are not cheap. .... I could see a significant downside. I could also see a flat market for quite some time, digesting that enormous return the Fed engineered for six years. Squawk Box: Richard, this digestive period, does it usher in an era where assets can't perform in the absence of accommodation? Fisher: Well, first of all, I don't think there can be much more accommodation. The Federal Reserve is a giant weapon that has no ammunition left. What I do worry about is: It was the Fed, the Fed, the Fed, the Fed for half of my tenure there, which is a decade. Everybody was looking for the Fed to float all boats. In my opinion, they got lazy. Now we go back to fundamental analysis, the kind of work that used to be done, analyzing whether or not a company truly on its own, going to grow its bottom line and be priced accordingly, not expect the Fed tide to lift all boats. When the tide recedes we're going to see who's wearing a bathing suit and who's not. We are beginning to see that. You saw that in junk last year. You also saw it even in the midcaps, and the S&P stripped of its dividends. The only asset that really returned anything last year, again if you take away dividends, believe it or not, was cash at 0.1%. That's a very unusual circumstance. Squawk Box: Richard. This has been an absolutely extraordinary interview. For you to come on here and say "I was one of the central bankers who engineered the frontloading of the banks, we did it to create a wealth effect" and then you go on and tell us, with a big smile on your face that we are overpriced, which is the word that you used, and there would be some digestive problems, are you going to take the rap if there is a serious correction in this market? Will you equally come on and say "I'm really sorry we overinflated the market", which is a logical conclusion from what you've said so far in this interview. Fisher: First of all I wouldn't say that. I voted against QE3. But there's a reason for doing this. Let's be fair to the central banks. We had a horrible crisis. We had to pull it out. All of us unanimously supported that initial move under Ben Bernanke. But in my opinion we went one step too far, which is QE3. By March 2009 we had already bought a trillion dollars of securities and the market turned that week. To me, personally, as a member of the FOMC, that was sufficient. We had launched a rocket. And yet we piled on with QE3, but the majority understandably worried we might slide backwards. I think you have to be careful here and frank about what drove the markets. Look at all the interviews over the last many years since we started the QE program. It was the Fed, the Fed, the Fed, the European central bank, the Japanese central bank, and what are the Chinese doing? All quantitative easing driven by central bank activity. That's not the way markets should be working. They should be working on their own animal spirits, but they were juiced up by the central banks, including the federal reserve, even as some of us would not support QE3. Mish Comments Finally, but too late, we have a frank admission by a Fed governor explicitly stating some things that needed to be said.
So here we are, back with another enormous bubble, on purpose, with the economy clearly weakening again. The wealth effect primarily benefited the already wealthy, at the expense of everyone else. In the process, corporations are more debt-leveraged than ever before, and houses are not affordable for those most in need of buying them. The process was entirely counterproductive, especially from QE3 on. Mike "Mish" Shedlock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December US New Car Sales "Down, Exceptionally Weak" Says Bloomberg; WSJ Says Up and Strong Posted: 05 Jan 2016 09:45 AM PST Domestic Car Sales Cap Record Year With Up (and Down) Month US car sales are going to have a record year in 2015, clearly one of the bright spots in the US economy. Judging from revisions in construction spending, perhaps the only bright spot left besides very lagging jobs data. December New Car Sales Decline Today I note from Bloomberg that Domestic New Car Sales Declined in December. "The Big Three are in and December sales are running below expectations, down about 5 percent from November vs expectations for a 1 to 2 percent decline. Car sales are especially weak with sales of light trucks down only slightly. The Big Three account for roughly half of all sales. Foreign brands will be posting their results through the session." December New Car Sales Rise One sees a completely different portrayal in the Wall Street Journal article U.S. Car Sales Poised for Their Best Year Ever. U.S. new-car sales accelerated through December as auto makers remained poised to report their highest annual sales ever, shattering the record set in 2000.Sales Purportedly Up (and Down) Can sales be up and down? Clearly not, so who is correct? The answer is Bloomberg. The reason pertains to the number of selling days.
Based on selling days alone, month over month car sales should be up 5/23 or 21.74%. They weren't. Other seasonal adjustments apply, such as the average December vs. the average November, but the bottom line is the reported month-over-month sales are not what they appear to be at first glance. Despite the hoopla, December car sales are actually down vs. November. Moreover, sales are "especially weak", given "sales of light trucks are down only slightly". Mike "Mish" Shedlock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Posted: 04 Jan 2016 11:58 PM PST Understanding the Construction Revisions Yesterday I commented Government "Processing Error" Sinks Housing Reports for Entire Year. In that article, I stated 2015 GDP would be revised lower. Some disagree. For example, MarketWatch reports IHS Global Insight US economist Patrick Newport wrote in a research note "The upward revision to spending in 2014 is enough to raise growth that year from 2.4% to 2.6%-2.7%. The revisions are likely to boost growth for 2015 as well." Let's investigate that claim with a look at the actual revised construction data as posted by the Census Bureau. Note: Don't study this table too long. Instead, skip to the analysis and tables that follow. Initially Reported vs. Revised - Seasonally Adjusted Data
Construction Spending Revised Lower 7 Consecutive Months! For two years, construction spending went up vs. previous reported data. The net effect is GDP did indeed rise more than reported in 2014. The flip side is 2015 GDP will be lower than previous reported. To understand why, we need to look at month over month differences as compared to previously reported numbers. Let's take a look. Total Construction Spending vs. Previous Reports
Total Residential Construction Spending vs. Previous Reports
4th Quarter GDPNow Forecast  The GDPNow forecast for 4th quarter is now down to 0.7% from 1.3% on December 23. 2015 GDP Will Decline vs. Previous Estimates: How Much? The question is not whether 2015 GDP will rise vs. previous estimates, but rather by how much it will sink. Let's start with the GDPNow forecast. Of the decline since December 23, 0.5 percentage points came following the Census Bureau's release on construction spending and the ISM report, both on January 4. I do not know how to separate ISM from construction, but the net result was as follows:
That's a total of decline for those three components of 0.37 percentage points. Part of that decline was based not only on revisions, but also on a month-over month decline in November construction spending of 0.4 percentage points. If 3/4 of the decline in those components is due to construction spending, then I estimate third quarter GDP will be revised about .57 percentage points lower, second quarter .56 percentage points lower, and first quarter .21 percentage points higher. Those are very crude calculations that may be wildly off the mark. If accurate, first quarter GDP would be 0.0%, second quarter GDP 3.3%, third quarter GDP would be 1.4%. And if the Atlanta Fed model holds with no changes from here, fourth quarter GDP would be 0.7%. In that case, 2015 GDP would be about 1.35% with the Fed hiking and GDP decelerating rapidly. Mike "Mish" Shedlock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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