Category: zerohedge

A comprehensive analysis of glyphosate – the most widely used weed-killing chemical in the world – reveals that those with the highest exposures to the popular herbicide have a 41% increased risk of developing non-Hodgkin lymphoma (NHL) cancer. 

The meta-analysis of six studies containing nearly 65,000 participants also looked at links between glyphosate-based herbicides and immunosuppression, endocrine disruption and genetic alterations. 

The study authors said their new meta-analysis evaluated all published human studies, including a 2018 updated government-funded study known as the Agricultural Health Study (AHS). Monsanto has cited the updated AHS study as proving that there is no tie between glyphosate and NHL. In conducting the new meta-analysis, the researchers said they focused on the highest exposed group in each study because those individuals would be most likely to have an elevated risk if in fact glyphosate herbicides cause NHL. –The Guardian

“Together, all of the meta-analyses conducted to date, including our own, consistently report the same key finding: exposure to GBHs are associated with an increased risk of NHL,” concludes the report. 

The study, which looks at both human and animal studies also suggests that glyphosate “alters the gut microbiome,” which could “impact the immune system, promote chronic inflammation, and contribute to the susceptibility of invading pathogens.“

Furthermore, glyphosate “may act as an endocrine disrupting chemical because it has been found recently to alter sex hormone production” in both male and female rats. 

Lastly, the study looks at genetic alterations caused by glyphosates, noting that several studies show glyphosates inducing “single- and double-strand DNA breaks,” oxidation, and other “genotoxicity” factors – though the researchers caution that this remains a controversial subject. 

The findings by five US scientists contradict the US Environmental Protection Agency’s (EPA) assurances of safety over the weed killer and come as regulators in several countries consider limiting the use of glyphosate-based products in farming.

Monsanto and its German owner Bayer AG face more than 9,000 lawsuits in the US brought by people suffering from NHL who blame Monsanto’s glyphosate-based herbicides for their diseases. The first plaintiff to go to trial won a unanimous jury verdict against Monsanto in August, a verdict the company is appealing. The next trial, involving a separate plaintiff, is set to begin on 25 February , and several more trials are set for this year and into 2020. –The Guardian

Monsanto claims that there is no legitimate scientific research conclusively linking glyphosate to NHL or any other type of cancer – pointing to fact that the EPA’s finding that the herbicide is “not likely” to cause cancer is backed by hundreds of studies. They have knocked claims by scientists with the International Agency for Research on Cancer (IARC) who classified glyphosate as a “probable human carcinogen” in 2015, suggesting that researchers engaged in improper conduct that failed to adequately consider several important studies. 

As the Guardian notes, “the new analysis could potentially complicate Monsanto’s defense of its top-selling herbicide,” as three of the study authors were tapped by the EPA as board members to sit on a 2016 scientific advisory panel on glyphosate. 

“This paper makes a stronger case than previous meta-analyses that there is evidence of an increased risk of NHL due to glyphosate exposure,” says co-author Lianne Sheppard, a professor in the Environmental and Occupational Health Sciences department at the University of Washington. “From a population health point of view there are some real concerns.“

SHeppard was an EPA adviser on glyphosate, and was one of three advisers who told the agency that it failed to follow proper scientific protocols when it concluded that glyphosate was unlikely to cause cancer.  

“It was wrong,” said Sheppard. “It was pretty obvious they didn’t follow their own rules, she said. “Is there evidence that it is carcinogenic? The answer is yes.“

The EPA says it is “reviewing the study.” 

via ZeroHedge News http://bit.ly/2SCqDzl Tyler Durden

For much of Q4, as the stock market was shaken by historic tremors, Fed policy errors and culminated with the worst December for the S&P since the great depression, not a week would go by without JPM’s head quant publishing a note (and another, and another) urging JPMorgan clients to throw caution to the wind and just buy stocks even as volatility rose and stocks tumbled. Alas, with every subsequent call to “buy the dip”, the market kept sliding lower and lower, until, some time in December, even Kolanovic threw in the towel and on January 3 admitted that “the month of December proved us wrong in the view that the market would rise into year-end and in 2018 overall.”

There was also a modest mea culpa, with footnotes:

Despite being wrong on the overall market direction, we had several correct predictions in 2018: we forecasted volatility and tail risk to rise, accurately predicted local market bottoms on Feb 9, May 1, and October 30, argued for EM-DM convergence, and pointed to US administration policies and the Fed as the key risks.

That, however, did not stop the JPM quant at the beginning of December from blaming a “viciously negative news and social media cycle” as well as  “specialized websites that mass produce a mix of real and fake news [and] often these outlets will present somewhat credible but distorted coverage of sell-side financial research, mixed with geopolitical news, while tolerating hate speech in their website commentary section” for screwing up his bullish bias.

He then decided to take a one month sabbatical, during which period the market imploded.

So now that the market has rebounded over 17% from its Christmas Eve lows, Marko is back, and he is not only as bullish as he was for all of Q4, but in taking a page from Charlie McElligott, believes that as a result of so many market participants having missed the recent rally (i.e., refusing to listen to Kolanovic), they will now have no choice but to be “forced in” to chase returns, a “re-levering cycle” which according to the JPM quant, may continue for another three months, or “could last between now and e.g. May.“

Marko’s argument should be familiar to anyone who read Charlie McElligott’s latest note, in which he explained why with volatility tumbling…

… and with most active investors not only painfully underinvested and selling stocks for much of the past 6 weeks…

… but force-squeezed on their shorts, coupled with systematic funds such as risk parity and vol-targeting rushing back into stocks, hot on the heels of CTAs who have recently gone 100% “max long” again, the JPM strategist is confident that these investors will become bulls mostly due to FOMO.

Here is Marko’s summary:

important groups of systematic and fundamental investors did not re-risk and missed a significant portion of the rally. This includes volatility sensitive managers, trend followers, and to a large extent hedge funds and retail.

“If volatility stays contained (and this is favored by gamma positioning), re-risking should continue” according to Kolanovic, who appears to gloss over the fact that all of these underinvested investors would have been in the market if only they had listened to him (suggesting that for some inexplicable reason the “viciously negative news and social media cycle” has more influence on Wall Street’s professional money managers than one of the most respected quants in the business).

But we digress, because now that the fiasco of Q4 2018 is in the rearview mirror, it’s time to double down for the JPM quant:

Following the January rally, our S&P 500 price target (3000) is no longer considered outlandish by most. Calls from various strategists for a 1929-style recession, rolling bear market, or imminent retest of lows are now getting quieter.

That said, perhaps as a result of some recent harsh market lessons, Kolanovic did hedge his latest breakout of bullishness, cautioning that “a negative outcome from the ongoing trade negotiations with China” could promptly crush his thesi:

In addition to various tail risks, by far the largest risk would be a failure in trade negotiations with China. A decline in the President’s approval rating on the back of the government shutdown and Q4 market selloff, may result in some market stability near term and may improve the likelihood of a positive outcome from trade negotiations.

Kolanovic also warns that there is a risk the market gets “too bullish”: “If the rally continues, investors would need to monitor the pace of re-leveraging and start hedging once the leverage of various investor cohorts becomes high.”

Of course, as we noted above, the rush into risk is just “one” page of the McElligott playbook; what Kolanovic did not focus on is that this alleged scramble to relever would take place at what McElligott dubbed the most “dangerous” period for stocks, with several reasons suggesting more pain is coming shortly, among which:

• Remember that Chinese data is expected to “print lows” in Q1 / Q2 (“gets worse before it can get better”), with the potential to dictate a disinflationary drag globally (despite the start of year “credit / liquidity injection IMPULSE”)
• In 2Q19 we too could see the potential commencement of the “earnings recession” with very tough 2Q18 comps
• From here, it’s even harder for the Fed—as the data has to either get way worse for them in order to get more dovish (for “bad” cycle-reality reasons!) OR the data stabilizes / strengthens, in turn risking another possible FOMC tone inflection which could put us back on the “FCI vicious cycle”—especially if stocks continue their re-pricing higher and “short volatility” positions are re-accumulated.

None of this was discussed by Kolanovic, who in recent years ever since his promotion, has been increasingly focusing on just one side of the trade (not the bearish one), which is perhaps why Charlie McElligott’s star has risen even faster in the recent past.

But it’s not just the Nomura strategist: Kolanovic’s now trademark optimism also contrasts with a recent take by Goldman strategists who warned that the latest rally is set to stall now that share prices already reflect confidence in stable growth and a dovish Federal Reserve, leaving little room for positive surprises. Morgan Stanley’s Michael Wilson doubled down on this point, saying that the hurdle for further rate action from this point on is that much higher, as either the economy would have to collapse for further action by Powell, or else the Fed will be forced to tighten soon if stocks, and economic indicators, continue to rebound, short-circuiting the Fed “pause”, and spooking risk assets once more.

None of this bothered the JPM quant, however, who is once again staunchly confident that – all else equal – once investors start to abandon their defensive stance on stocks, it’s going to be a mutli-month process of adjustment, and investors should ride along, he said. According to the firm’s estimates, funds’ equity exposure sit in the 10th to 20th percentile of the historic range.

“For instance, we are now in the ~10-20th percentile, and one could run long until exposure reaches the ~70-80th percentile, when the risk of another market seizure increases. ” Kolanovic wrote. “This re-levering cycle could last between now and e.g. May.”

Whether Kolanovic (who is now on the same side of the trade as Dennis Gartman, with the “world-renowned commodity guru” even more bullish in recent weeks) be right this time, or will algos pull the rug from under the “underinvested” just as they capitulate and decided to give bullishness a try, we’ll know in just over two weeks when the US-China tariff deadline hits, assuming of course it has not been delayed once again by then.

via ZeroHedge News http://bit.ly/2Gqz3Dc Tyler Durden

“Millions of Americans may be sorely disappointed” by the Mueller report – or lack thereof, according to NBC News.

Yes, after nearly three years of DOJ investigation, FBI spying, and what appears to have been a setup involving a mysterious Maltese professor who bragged about his ties to the Clinton Foundation – it looks like that “the public may never learn the full scope of what Mueller and his team has found,” according to the report – which comes days after a bipartisan Senate investigation found no collusion between Trumpworld and Russia, and the same day as former Deputy FBI Director Andrew McCabe admitted that he rushed to open the Russia probe out of fear of being fired. 

Unless Mueller files a detailed indictment charging members of the Trump campaign with conspiring with Russia, the public may never learn the full scope of what Mueller and his team has found — including potentially scandalous behavior that doesn’t amount to a provable crime.

The reason: The special counsel operates under rules that severely constrain how much information can be made public. –NBC News

And while the Attorney General will be required to notify Congress of Mueller’s findings, those reports must amount to “brief notifications, with an outline of the actions and the reasons for them.” 

“Expectations that we will see a comprehensive report from the special counsel are high. But the written regulations that govern the special counsel’s reporting requirements should arguably dampen those expectations,” said former federal prosecutor Chuck Rosenberg. 

In December, an overwhelming majority of adults surveyed by PBS NewsHour said that the Mueller report should be made public in its entirety, while lawmakers have said the same. 

In January, Sen. John Kennedy (R-LA) said “I think it’s really important that this report be made public,” adding “People are smart enough to figure it out and they’ve heard so much about it and they’ve listened to all the spin on both sides. This is an unusual circumstance and the American people need to see this report.”

“Whether the [Mueller] report will be made public is very uncertain. I’ve been worried about this,” @SenJohnKennedy says as AG nominee William Barr’s confirmation hearing enters its second day. https://t.co/0pHJvNgdRB pic.twitter.com/u8PT8QTmcY

— New Day (@NewDay) January 16, 2019

When asked about making the Mueller report public, Trump’s pick for Attorney General, William Barr, has said “My goal will be to provide as much transparency as I can consistent with the law,” adding “I can assure you that, where judgments are to be made, I will make those judgments based solely on the law and I will not let personal, political or other improper interests influence my decision.”

Sen. Dianne Feinstein (D-CA) said in January that her vote on Barr’s nomination is contingent upon whether he will release the report publicly. 

“My vote really depends on whether I believe that that report will come out as written,” said Feinstein. “I served for a long time on the Intelligence Committee, and I know redaction can be excessive.”

House Intelligence Committee Chairman Adam Schiff (D-CA) – who has vowed to continue the investigation into President Trump’s finances and foreign connections for as long as it takes, pushed for the Mueller report to be made public.

“I think the report should be made public with only minimal redactions for national security,” Schiff said in January. 

via ZeroHedge News http://bit.ly/2S5bcui Tyler Durden

China has been Tesla’s second largest market, as the prominence of EVs across the Asian country has been the sole bright spot in an auto industry that stagnated and recessed heading into the start of 2019. But according to a report by Daily Kanban citing research done by the Manhattan-based JL Warren Capital, exports and sales to China have “fallen off a cliff” during the final quarter of 2018. 

JL Warren Capital’s lead analyst, Junheng Li, shared the new information in a recent note to her paying customers. According to the report, Tesla exports to and registrations in China nearly halved during the final quarter of 2018.

In October 2018, Tesla registrations were down 86% to just 211 for all of China, as we noted back in November. The number later recovered to -48% for the quarter. Exports to the country were “down accordingly”.

After the 211 number was reported in October of last year, Tesla disputed it to CNBC.

“This is wildly inaccurate. While we do not disclose regional or monthly sales numbers, these figures are off by a significant margin,” a Tesla spokesperson said back in October. 

But Li again confirmed the 211 number in her report, using customs data and official data from China’s Passenger Car Association.

Until the company’s Shanghai factory is finished, Li says Tesla will have to continue to import Model 3s to the country to “lackluster demand”. Li’s note reads: 

“Due to the lack of actual cars (even in the stores) in China, thus no test drives, no user reviews, soft economic environment, and Chinese preference for big cars, the ongoing orders for 3 is not optimistic. We estimate that Model 3 orders nationwide are in hundreds as of today.”

This ugly news for Tesla comes in the midst of a full scale slowdown in the Chinese car market. In January, we reported that the sharp plunge in auto sales in China has continued: retail sales of passenger vehicles – which included sedans, MPVs, mini-vans and SUVs – in China fell a whopping 19% in 2018 to 2.26 million units.

 

 

via ZeroHedge News http://bit.ly/2S3HeqD Tyler Durden

Authored by Mac Slavo via SHTFplan.com,

Another economic red flag has appeared and its the closure of retail stores.  According to a new report detailing the precarious situation of the current economy, there is “no light at the end of the tunnel” as the closure of brick and mortar stores will continue.

Coresight Research released an outlook of 2019 store closures Wednesday, saying, there’s “no light at the end of the tunnel,” according to several reports, including one from Yahoo News.  According to the global market research firm’s report, a mere six weeks into 2019, United States retailers have announced 2,187 closings of physical stores.  That’s up 23 percent compared to last year. Those closings include 749 Gymboree stores, 251 Shopko store,  and 94 Charlotte Russe locations.

This may not seem like such a big deal especially if you don’t often shop, but it’s a red flag for the overall economy.  Either customers/consumers now have less money and aren’t willing to borrow (use credit cards) to spend at stores anymore, or they are already maxed out and cannot spend.  Another issue could be the overbearing regulations and burdensome theft (taxation) levied on business. It could be a combination of all of those as well, making the cost of keeping a brick and mortar store open no longer worth it.

But reports and the media blame the growth of online sales, rising interest rates, and declining sales.  Bankruptcies also are continuing at a rapid pace “with the number of filings in the first six weeks of 2019 already at one-third of last year’s total,” the report states. That means companies have taken on more debt than they can handle, and much like individuals, when that happens, it is likely the beginning of some very rough times ahead.  And debt is a major concern right now for most economists.  Consumer debt, student loan debt, auto debt, and the national debt has all reached historic records – and that isn’t a positive sign for the economy.

Payless ShoeSource is reported to be considering its second bankruptcy and if Charlotte Russe doesn’t find a buyer by February 17, the chain plans to completely liquidate, according to a court filing.

 “The continuation of a high level of retail bankruptcies, with the annualized number of filings year-to-date in 2019 already outpacing the number in 2018,” Coresight said in the new report.

The economy is very unstable right now, and all the signs of a coming recession on there.  Will it happen in 6 months? One year? Two years? No one knows exactly, but the everything bubble the global economy is experiencing now will at some point, deflate.

via ZeroHedge News http://bit.ly/2SRV2J7 Tyler Durden

After finding they could largely get away with raising prices last year, makers of household staples are planning another round of inflationary price hikes in order to offset higher commodity costs and boost profits, according to the Wall Street Journal. 

Unsurprisingly, the price increases have been working out swimmingly for makers of consumer-goods, particularly for companies whose competitors have responded with their own price hikes, according to Wells Fargo Securities analyst Bonnie Herzog. 

According to an analysis of Nielsen data by Sanford C. Bernstein, US sales volumes of personal and household products declined 1.4% in January, while dollar sales of those products rose 0.7% in the same period – suggesting that the price increases are more than offsetting the decline. Meanwhile, a robust job market providing Americans with the largest annual wage increases since the end of the recession has boosted average hourly earnings for private-sector workers by 2.9% y/y; the most since January 2009. 

Maker of Arm & Hammer products Church & Dwight recently increased its prices on 30% of its products – including baking soda, cat litter and OxiClean cleaning products, while Clorox raised prices on about half of its product portfolio last year – including their Glad trash bags and plastic wraps. Clorox attributed price hikes to a boost in profit margins in its most recent quarterly filing, yet because Glad’s competitors did not follow suit with higher prices of their own, the company experienced an overall sales decline in the period. The company most famous for bleach plans to boost spending on promotions in the near term to make up for the sagging sales, executives announced on Monday. 

CEO Benno Dorer last week voiced confidence in Clorox’s pricing strategy over the long term, and the company expects to invest in new products. Higher prices for Kingsford charcoal and Burt’s Bees products went into effect in December and February, respectively. –WSJ

That said, while Clorox reports higher sales in other categories such as cat litter and bleach, there are limits to what people will pay. 

Tyler Aftab, a 35-year-old teacher in Green Brook, N.J., said he noticed at his local Costco last week that Charmin and Bounty, which were normally under $18 last year, were both being sold for about $23. Glad trash bags, normally under $15, were listed at about $19.

Mr. Aftab bought the Glad kitchen bags discounted for under $16. He opted to buy Costco’s Kirkland Signature brand of paper towels instead of Bounty. He decided to not buy any toilet paper.

“I am a fairly loyal consumer of Charmin, but I will not pay $23 for the pack,” Mr. Aftab said. “I will wait until those prices come down.” –WSJ

Meanwhile, Procter & Gamble has been experimenting with price increases of its own on a rolling basis – from around 4% to 10% on products such as Puffs brands, Papers, Bounty and Charmin – which consumers can expect to see as soon as this month. 

The price hikes led to an increase in organic sales, according to a January report by the company – “a closely watched metric that strips out currency moves, acquisitions and divestitures,” reports the Journal. 

Church & Dwight CEO Matthew Farrell said last week that the company has been in discussions with retailers to raise prices on other products – including personal care items. According to the Associated Press, the price hikes will address the company’s lower than expected gross margin, which was attributed to “the household business growing faster than expected and U.S. tariffs, the impact of which has been addressed with the announcement of 2019 price increases.”

“The good news is that competitors are raising price in those categories as we speak,” said Farrell on a conference call last week. 

Kimberly-Clark, whose portfolio of produicts includes Viva, Huggies, Cottonelle, Kleenex and Depend adult diapers, said last month that it expects volumes to suffer – especially with tissue products, after price increases averaging in the mid-to-high single digit percent range are expected to put a damper on sales. That said, the company expects organic sales to increase by 2% this year. 

According to Bernstein analyst Ali Dibadj, copmpanies without a mix of migh and low-priced products won’t find it as easy to pull off price increases because price-sensitive customers may abandon their brands completely. 

“The big fear is your pricing is too high and that consumers are just not going to come back to your brand.” 

via ZeroHedge News http://bit.ly/2GJfyW3 Tyler Durden

Another day, another Brexit-related vote… and another disappointment for UK PM Theresa May.

As The FT reports, Theresa May has suffered a substantial parliamentary defeat on her Brexit plan B, undermining her credibility as she seeks to continue negotiations with the EU.

The prime minister lost by 303 votes to 258 after seeking MPs’ backing for her approach to renegotiating her withdrawal agreement with the EU after the House of Commons emphatically rejected it last month.

Thursday’s vote against her brought into serious question her claim two weeks ago to have “a substantial and sustainable majority” of MPs in favour of her approach.

The reaction (or lack of it) tells you all you need to know about this non-binding vote…

Opposition leader Jeremy Corbyn was quick to jump on the bandwagon (though notably has no solutions himself)…

“Tonight’s vote shows there is no majority for supporting the prime minister’s course of action on Brexit.”

Additionally, both wings of the Conservative party – Europhiles and Eurosceptics – expressed anger at Mrs May’s parliamentary tactics earlier in the day.

The Food and Drink Federation is quick with its response:

“The defeat of the Government motion tonight will increase fears among food and drink manufacturers that there is now a diminishing prospect of rescue from the catastrophe of a ‘no-deal’ Brexit,” Chief Executive Ian Wright says in a statement.

The First Minister of Wales comments after the vote (Mark Drakeford @fmwales):

The PM is simply counting down the clock and forcing us into choice of no deal or her deal. This is a trap. It’s time to take no deal off the table, bring forward legislation to remove March 29th as exit day & seek extension to Article 50.”

A no-deal brexit seems to be looming ever closer.

via ZeroHedge News http://bit.ly/2SPiJlu Tyler Durden

Authored by Lance Roberts via RealInvestmentAdvice.com,

It is often said that one should never discuss religion or politics as you are going to wind up offending someone. In the financial world it is mentioning the “R” word.

The reason, of course, is that it is the onset of a recession that typically ends the “bull market” party. As the legendary Bob Farrell once stated:

“Bull markets are more fun than bear markets.”

Yet, recessions are part of a normal and healthy economy that purges the excesses built up during the first half of the cycle.

Since “recessions” are painful, as investors, we would rather not think about the “good times” coming to an end. However, by ignoring the risk of a recession, investors have historically been repeatedly crushed by the inevitable completion of the full market and economic cycle.

But after more than a decade of an economic growth cycle, investors have become complacent in the idea that recessions may have been mostly mitigated by monetary policy.

While monetary policy can certainly extend cycles, they cannot be repealed.

Given that monetary policy has consistently inflated asset prices historically, the reversions of those excesses have been just as dramatic. The table below shows every economic recovery and recessionary cycle going back to 1873.

Importantly, note that the average recessionary drawdown historically is about 30%. While there were certainly some recessionary drawdowns which were very small, the majority of the reversions, particularly from more extreme overvaluation levels as we are currently experiencing, have not been kind to investors.

So, why bring this up?

“In the starkest warning yet about the upcoming global recession, which some believe will hit in late 2019 or 2020 at the latest, the IMF warned that the leaders of the world’s largest countries are ‘dangerously unprepared’ for the consequences of a serious global slowdown. The IMF’s chief concern: much of the ammunition to fight a slowdown has been exhausted and governments will find it hard to use fiscal or monetary measures to offset the next recession, while the system of cross-border support mechanisms — such as central bank swap lines — has been undermined.” – David Lipton, first deputy managing director of the IMF.

Despite recent comments that “recession risk” is non-existent, there are various indications which suggest that risk is much higher than currently appreciated.  The New York Federal Reserve recession indicator is now at the highest level since 2008.

Also, as noted by George Vrba recently, the unemployment rate may also be warning of a recession as well.

“For what is considered to be a lagging indicator of the economy, the unemployment rate provides surprisingly good signals for the beginning and end of recessions. This model, backtested to 1948, reliably provided recession signals.

The model, updated with the January 2019 rate of 4.0%, does not signal a recession. However, if the unemployment rate should rise to 4.1% in the coming months the model would then signal a recession.”

John Mauldin also recently noted the same:

“This next chart needs a little explaining. It comes from Ned Davis Research via my friend and business partner Steve Blumenthal. It turns out there is significant correlation between the unemployment rate and stock returns… but not the way you might expect.

Intuitively, you would think low unemployment means a strong economy and thus a strong stock market. The opposite is true, in fact. Going back to 1948, the US unemployment rate was below 4.3% for 20.5% of the time. In those years, the S&P 500 gained an annualized 1.7%.”

“Now, 1.7% is meager but still positive. It could be worse. But why is it not stronger? I think because unemployment is lowest when the economy is in a mature growth cycle, and stock returns are in the process of flattening and rolling over. Sadly, that is where we seem to be right now. Unemployment is presently in the ‘low’ range which, in the past, often preceded a recession.

The yield spread between the 10-year and the 2-year Treasury yields is also suggesting there is a rising risk of a recession in the economy.

As I noted previously:

“The yield curve is clearly sending a message that shouldn’t be ignored and it is a good bet that ‘risk-based’ investors will likely act sooner rather than later. Of course, it is simply the contraction in liquidity that causes the decline which will eventually exacerbate the economic contraction. Importantly, since recessions are only identified in hindsight when current data is negatively revised in the future, it won’t become ‘obvious’ the yield curve was sending the correct message until far too late to be useful.

While it is unwise to use the ‘yield curve’ as a ‘market timing’ tool, it is just as unwise to completely dismiss the message it is currently sending.”

We can also see the slowdown in economic activity more clearly we can look at our RIA Economic Output Composite Index (EOCI). (The index is comprised of the CFNAI, Chicago PMI, ISM Composite, All Fed Manufacturing Surveys, Markit Composite, PMI Composite, NFIB, and LEI)

“As shown, over the last six months, the decline in the LEI has actually been sharper than originally anticipated. Importantly, there is a strong historical correlation between the 6-month rate of change in the LEI and the EOCI index. As shown, the downturn in the LEI predicted the current economic weakness and suggests the data is likely to continue to weaken in the months ahead.”

With the exception of the yield curve, which is “real time,” the rest of the data is based on economic data which has a multitude of problems.

There are many suggesting currently that based on current economic data, there is “no recession” in sight. This is based on looking at levels of economic data versus where “recessions” started in the past.

But therein lies the biggest flaw.

“The problem with making an assessment about the state of the economy today, based on current data points, is that these numbers are ‘best guesses’ about the economy currently. However, economic data is subject to substantive negative revisions in the future as actual data is collected and adjusted over the next 12-months and 3-years. Consider for a minute that in January 2008 Chairman Bernanke stated:

‘The Federal Reserve is not currently forecasting a recession.’

In hindsight, the NBER called an official recession that began in December of 2007.”

The issue with a statement of “there is no recession in sight,” is that it is based on the “best guesses” about the economy currently. However, economic data is subject to substantive negative revisions in the future as actual data is collected and adjusted over the next 12-months and 3-years. Consider for a minute that in January 2008 Chairman Bernanke stated:

“The Federal Reserve is not currently forecasting a recession.”

In hindsight, the NBER called an official recession that began in December of 2007.

But this is almost always the case. Take a look at the data below of real (inflation-adjusted)economic growth rates:

• September 1957:     3.07%

• May 1960:                 2.06%

• January 1970:        0.32%

• December 1973:     4.02%

• January 1980:        1.42%

• July 1981:                 4.33%

• July 1990:                1.73%

• March 2001:           2.31%

• December 2007:    1.97%

Each of the dates above shows the growth rate of the economy immediately prior to the onset of a recession.  In 1957, 1973, 1981, 2001, 2007 there was “no sign of a recession.” 

The next month a recession started.

So, what about now?

“The recent decline from the peak in the market, is just that, a simple correction. With the economy growing at 3.0% on an inflation-adjusted basis, there is no recession in sight.” 

Is that really the case or is the market telling us something?

The chart below is the S&P 500 two data points noted.

The green dots are the peak of the market PRIOR to the onset of a recession. In 8 of 9 instances, the S&P 500 peaked and turned lower prior to the recognition of a recession. The yellow dots are the official recessions as dated by the National Bureau of Economic Research (NBER) and the dates at which those proclamations were made.

At the time, the decline from the peak was only considered a “correction” as economic growth was still strong.

In reality, however, the market was signaling a coming recession in the months ahead. The economic data just didn’t reflect it as of yet. (The only exception was 1980 where they coincided in the same month.) The chart below shows the date of the market peak and real GDP versus the start of the recession and GDP growth at that time.

The problem is in waiting for the data to catch up.

Today, we are once again seeing many of the same early warnings. If you have been paying attention to the trend of the economic data, the stock market, and the yield curve, the warnings are becoming more pronounced. In 2007, the market warned of a recession 14-months in advance of the recognition. 

So, therein lies THE question:

Is the market currently signaling a “recession warning?”

Everybody wants a specific answer. “Yes” or “No.”

Unfortunately, making absolute predictions can be extremely costly when it comes to portfolio management.

There are three lessons to be learned from this analysis:

1. The economic “number” reported today will not be the same when it is revised in the future.

2. The trend and deviation of the data are far more important than the number itself.

3. “Record” highs and lows are records for a reason as they denote historical turning points in the data.

As Doug Kass noted on Tuesday there are certainly plenty of risks to be aware of:

1. Domestic economic growth weakens, Chinese growth fails to stabilize and Europe enters a recession

2. U.S./China fail to agree on a trade deal

3. Trump institutes an attack on European Union trade by raising auto tariffs

4. U.S. Treasury yields fail to ratify an improvement in economic growth

5. The market leadership of FANG and Apple (AAPL) subsidies

6. Earnings decline in 2019 and valuations fail to expand

7. The Mueller Report jeopardizes the president

8. A hard and disruptive Brexit

9. Crude oil supplies spike and oil prices collapse, taking down the high-yield market

10. Draghi is replaced by a hawk

While the call of a “recession” may seem far-fetched based on today’s economic data points, no one was calling for a recession in early 2000, or 2007, either. By the time the data is adjusted, and the eventual recession is revealed, it won’t matter as the damage will have already been done.

Pay attention to the message markets are sending. It may just be saying something very important.

via ZeroHedge News http://bit.ly/2SPd6n5 Tyler Durden

Following the biggest plunge in the retail sales control group – the one variable that feeds into the BEA’s GDP estimates – since Sept 11…

… we said that “this will be a disaster for Q4 GDP forecasts which we now expect to print in the low 1% range.”

And sure enough, the downgrades started shortly thereafter, with virtually every bank slashing its estimates for Q4 GDP.

JPMorgan was first, and now forecasts that Q4 GDP grew at just 2.0% annualized, down sharply from the bank’s prior estimate of 2.6%.

Barclays joined the bandwagon, cutting its previous 2.8% Q4 GDP forecast to 2.1%.

Goldman wasn’t far behind, and in a note released by its economics team, said that “the retail sales report indicated a considerably weaker pace of fourth quarter consumption growth than we had previously assumed. Reflecting this and lower-than-expected November business inventories, we lowered our Q4 GDP tracking estimate by five tenths to +2.0% (qoq ar).” Goldman also  lowered its subjective odds of a Q2 Fed hike to 15% (from 25% previously), which is of course, amusing considering that as recently as 2 months ago Goldman was expecting 4 rate hikes in 2019.

But the most scathing revision came from the Atlanta Fed, whose GDPNow just suffered its biggest graviational “glitch” in history, crashing to just 1.5% following today’s retail sales data, down nearly 50% from 2.7% as recently as February 6. This is how the economist ‘experts’ at the Fed justified their reasoning:

After this morning’s retail sales and retail inventories releases from the U.S. Census Bureau, the nowcast of fourth-quarter real personal consumption expenditures growth fell from 3.7 percent to 2.6 percent, and the nowcast of the contribution of inventory investment to fourth-quarter real GDP growth fell from -0.27 percentage points to -0.55 percentage points.

And visually:

Why such a dramatic cut? Because apparently nobody could possibly expect retail sales to plunge so much. Nobody, of course, except the occasional “fringe” website, which warned to “Brace For A Plunge In Retail Sales.”

via ZeroHedge News http://bit.ly/2EbIAfk Tyler Durden

Speaking at the US-sponsored Warsaw summit on the Middle East, Vice President Mike Pence on Thursday railed against European efforts to circumvent American sanctions on Iran, and crucially as Bloomberg concludes, his speech confirms the “US and its oldest allies across the Atlantic are becoming estranged.”

He slammed European efforts to “break American sanctions against Iran’s murderous revolutionary regime” — a theme also repeated by Pompeo and Israeli PM Netanyahu on the same day.

Pence specifically reprimanded the UK, France, and Germany for launching a so-called “SWIFT alternative” or special purpose vehicle to allow non-dollar trade with Tehran and to facilitate humanitarian goods-related transactions, called INSTEX — or “Instrument in Support of Trade Exchanges”. Europe sees it as a crucial step in keeping the 2015 nuclear deal alive after Washington was able to pressure the Belgium-based SWIFT financial messaging service to cut off the access of Iranian banks last year. 

“They call this scheme a ‘Special Purpose Vehicle’,” Pence said, as cited by Bloomberg. “We call it an effort to break American sanctions against Iran’s murderous revolutionary regime.’’ The Paris-based INSTEX initiative represents the most concrete action Europe has taken to directly thwart Washington sanctions.

“We call it an ill-advised step that will only strengthen Iran, weaken the EU and create still more distance between Europe and America,’’ Pence said. Though many observers have predicted the issue would come to a head, this is the first time a top US leader has stood in Europe berating allies over offering Iran sanctions relief. Tehran for its part has said it’s not enough, though a minimal beginning by the EU. 

Pence further urged the Europeans to break completely with the Iran deal: “For the sake of peace, security, stability, and human rights in the Middle East, the time has come for our European partners to stand with us, stand with the Iranian people, stand with our allies and friends in the region — and we reject the Iran nuclear deal,” he said. 

Pence also met with Israeli PM Benjamin Netanyahu, and the two agreed that Iran is “the leading state sponsor of terror in the world.” During his speech at the Warsaw summit Pence cited the bombing of American embassies, the murder of “hundreds of American troops” and noted further that Iran still “holds US citizens hostage”.

According to The Guardian, European nations were skittish over how represented they would be, over fear of US intent to make the conference Iran-centric: 

The Warsaw meeting was attended by more than 60 nations, but major European powers such as Germany and France, parties to the landmark 2015 nuclear accord with Iran, refused to send their top diplomats over fears that the summit was designed largely to build an alliance against Tehran.

The US for its part sent VP Pence, Secretary of State Mike Pompeo, and Jared Kushner, Donald Trump’s son-in-law and special aide on the Middle East.

Pompeo’s address to summit representatives urged the world to “confront Iran”. He said to reporters afterward, “You can’t achieve stability in the Middle East without confronting Iran. It’s just not possible.” He cited places the US sees as Iranian proxy ground: “There are malign influences in Lebanon, Yemen, Syria and Iraq,” in reference to groups Iran supports. “The three H’s: the Houthis, Hamas and Hezbollah, these are real threats,” he added. 

However, given Assad’s victory in Syria alongside Iranian, Hezbollah, and Russian support, it appears US options in these proxy confrontations in the Middle East remain limited and rapidly diminishing, and even more so now that EU is increasingly going its own course.

via ZeroHedge News http://bit.ly/2BvOTIP Tyler Durden