Month: March 2018

When back in February, we pointed out a disturbing and dramatic divergence in the delinquency and charge-off rates between America’s thousands of small banks and the 100 or so biggest…

… we wondered if anyone would notice it. After all the implications were profound, and as TCW had previously noted, it “was America’s smaller banks – those not in the Top 100 by asset size – that have experienced in just the recent months a surge in charge-off deterioration, which at 7.9% is on par with the last financial crisis!“

Well, just a few days later, the WSJ did, and overnight so did SocGen’s Albert Edwards, who unlike the paper of record had a kind introduction to this critical inflection point in the economic data, if only for those banks which cater to the less affluent, more “regional” Americans:

I know some people don’t like the Zero Hedge (ZH) blog, but I certainly do –and not just for the confirmatory bias it gives me regarding own bearish views. ZH often flags up economic data and issues I would otherwise miss, ahead of the pack. Not much surprises me or shocks me nowadays, but I was truly gobsmacked by the surge in charge-offs and  delinquency rates on credit card loans made by smaller US banks (see chart above).

In the aforementioned WSJ article, Robert Hammer, chief executive of credit card industry consultant R.K. Hammer, says, “The small banks’ experience is simply a leading indicator of a downturn to come. In the run-up to the last recession losses accelerated for small banks before they did for big ones.”

And while we thank Albert for the kind words, the reason we once again remind readers of this particular data, is that as Edwards further notes, it is a key part of the puzzle suggesting that a recession – or maybe stagflation – is rapidly headed for the US economy, which is “about to reach a memorable milestone” as the US economic cycle is set to hit 106 months in April, making it the second longest in history, and would be the longest ever if there is no recession by the time Trump begins campaigning for his second term in the summer of 2019.

“Here, Edwards quotes Lance Roberts, who says that “It is certainly not surprising that after one of the longest cyclical bull markets in history individuals are ebullient about the long-term prospects of investing. The ongoing interventions by global central banks have led to T.T.I.D. (This Time Is Different) and T.I.N.A. (There Is No Alternative), which has become a pervasive and Pavlovian investor mindset. But therein lies the real story. The chart below shows every economic expansion going back to 1871 and the subsequent market decline. This chart should make one point very clear – this cycle will end.”

Of course it will, but when?

Commenting on this rhetorical question, Edwards notes that “clients always want to know if they should worry NOW?” His answer to that is “yes they should” as there are “very worrying signs that yet another Fed-inspired credit bubble is beginning to burst”, and not just in the surge in small bank delinquencies.

My former colleague Paul Jackson puts some great charts on Twitter and is definitely worth following (his handle is @belgiandentists, or is the term ‘handle’ from CB radio and the Convoy film). Paul showed that it is not just credit card delinquencies that are on the rise – mortgage delinquencies are too (see chart below).

There are many other pre-recession/bubble-bursting signals emerging, one of which has been flagged by William White, former chief economist of the BIS, who warned that the current situation is as dangerous as 2008.

White, now at the OECD, believes successive economic recoveries have been so reliant on debt that interest rates cannot rise to prior cycle levels, and hence there is a downside bias in each successive cycle. In particular, the extreme monetary policy measures taken since 2008 have inflated yet another credit bubble. As the Fed now tries to normalise rates with an eye on the real economy, unemployment and inflation, it will find that the newly inflated credit system is unable to tolerate even moderate rises in rates.

A familiar concern here is that rising rates would destroy the countless number of “zombie companies” which only exist thanks to low interest rates. This was highlighted in a recent report by Moody’s, which “certainly seem concerned that although credit markets have shrugged off sky-high corporate debt levels, the Q1 slowdown in GDP and business sales may begin to re-engage the disturbing relationship below.”

Another worry is the recent sharp weakening of the US (and European) economies in recent weeks…

… even as markets enter another confidence-crushing correction.

Once again the Fed has built up the illusion of economic prosperity on a mountain of debt, fuelled by monetary steroids that have inflated asset values way beyond their sustainable level. As markets begin to slide, this wealth is now being eviscerated as quickly as it was created, and it threatens this increasingly anaemic and very aged recovery.

And while his analysis is now slightly out of date – recall we showed earlier today that the US savings rate has actually grown to the highest since last August after hitting near all time lows recently as Americans slowed their spending, Edwards points out that the US Saving Ratio (SR) collapsed at the back end of last year to only 2½% (close to its all-time low), driven in large part by the stock market rally (see chart below – SR inverted).

My back of the envelope calculations (OK, I used a calculator) suggest that without the fall in the SR through 2017,  the 2.3% GDP growth recorded for 2017 would have been only 1.5%, the same as 2016. The risk is now, with the tide going out on the equity market that the SR jumps higher, growth flounders, and the iceberg of debt rips open the hull of this supposedly unsinkable economic ship. If you want to blame someone, blame the Fed. And I am sure that is exactly what President Trump will do when he loses patience and moves to remove their independent status.

Finally, speaking of the Fed, it is worth remembering that just as the Fed unleashed the (soon to be) second longest expansion in history with the help of trillions in liquidity injections and asset purchases, so it will be the Fed that will launch the next recession depression.

The Fed generally tightens rates until something breaks. David Rosenberg points out that since 1950 there have been 13 Fed tightening cycles, and 10 of them ended in recession (while the others have often ended in emerging market blow-ups, like the 1994 Mexican peso crisis). Surging delinquency and charge-off rates for smaller banks  suggest the breaking point for the economy may come sooner than the Fed and bulls expect.

Which brings us to Edwards’ conclusion which is a welcome one for those who say the time to end the Fed is here, as the SocGen analyst believes that it will be Fed that is ended after the next crash:

This data merely reflects the illusion of prosperity. The markets are now sniffing out a rising stench from decaying debt. They say a fish rots from the head down. Unlike the 2008 financial crisis, this time I expect it is the Fed that will be held responsible for yet another debt crisis. Do not expect their independence to survive.

One can only hope.

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With its bonds and stocks in freefall amid concerns that the company will run out of cash in the summer, Tesla management is desperately shifting its priorities to Model 3 production, as Bloomberg reports the company plans to shutdown the S and X production line and give a limited number of workers the option to work on the crucial Model 3 line instead.

The market is not buying it for now…

 

And that collapse in asset prices has upset one man in particular (via Bloomberg)

Doug Field, senior vice president of engineering, said if the team can exceed 300 Model 3s a day it would be an “incredible victory” at a time when some investors are casting doubt on the company and shorting its stock.

“I find that personally insulting, and you should too. Let’s make them regret ever betting against us,” Field wrote in the March 23 email. “You will prove a bunch of haters wrong.”

At the time of Field’s email, Tesla was making more than 200 Model 3 sedans a day on every line, he wrote. Field urged workers to quickly break through the 300-cars-a-day barrier and keep going, while keeping quality standards high.

“The world is watching us very closely, to understand one thing: How many Model 3’s can Tesla build in a week?” Field wrote.

“This is a critical moment in Tesla’s history, and there are a number of reasons it’s so important. You should pick the one that hits you in the gut and makes you want to win.”

But what if the quality of the builds remains as dismal as it has been reported to be?

As a gentle reminder, the firm did the same in December and it did not end well: Build Fast, Fix Later: Tesla Employees Say 90% Of Model S/X Cars Fail Quality Checks After Assembly

The most recent collapse has pushed Tesla’s market cap back below that of Ford’s and GM’s – almost exactly a year to the date when the ‘tech’ company overtook the ‘carmakers’…

Tick tock, Elon.

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Authored by Anatole Kaletsky via Project Syndicate,

Economists may warn that the combination of Trump’s protectionism, big tax cuts, and uncontrolled government borrowing, coming at a time when the US economy is already near full employment, will ultimately fuel inflationary pressure. But financial markets simply do not believe this message.

As US President Donald Trump ratchets up his trade war with China and the Federal Reserve Board increases US interest rates, the prospects for the world economy and financial markets, so bright just a few months ago, appear to be darkening. Stock markets around the world have fallen back toward their February lows, business confidence has weakened in Europe and much of Asia, and policymakers worldwide are making nervous noises. Are these events the beginning of the end of the global economic expansion, or is the recent market turbulence just a false alarm?

Last month, I highlighted three indicators – the oil price, long-term US interest rates, and the dollar’s exchange rate – suggesting that global conditions would remain benign. Economists may warn that the combination of Trump’s protectionism, big tax cuts, and uncontrolled government borrowing, coming at a time when the US economy is already near full employment, will ultimately fuel inflationary pressure. But financial markets simply do not believe this message. And since the financial turbulence of early February, the message from the biggest and most important financial market – for US government bonds – has become even more reassuring.

Despite the Fed’s decision to raise short-term interest rates, and to signal more rate hikes than expected for 2019, interest rates on US ten-year bonds have fallen to levels well below their February peak. Thirty-year interest rates are now below their 2017 peak of around 3.25%. These interest-rate movements imply that bond investors are less worried today about inflation and economic overheating than they were before Trump’s tax cuts, protectionist measures, and the shift from budget consolidation to aggressive fiscal expansion.

The fact that bond investors seem unworried about inflation or overheating does not mean that Trump’s protectionism and fiscal profligacy are harmless. Financial markets are sometimes catastrophically wrong, as they were before the 2007-08 financial crisis. But the US bond market is more than just an indicator of financial opinion. The long-term interest rates set in bond markets have so much impact on business conditions that changes in investors’ views can influence economic reality almost as much as vice versa.

At present, investors’ views and economic reality are completely at odds. Long-term interest rates of around 3% come nowhere near pricing in the Fed’s inflation target of 2% plus the real economic growth of 2-3% that was likely to be achieved even before the Trump administration’s big fiscal stimulus. In fact, both economic analysis and decades of past experience suggest that long-term interest rates tend to fluctuate around the rate of nominal GDP growth. This rule of thumb implies 30-year rates in the 4-5% range. And if Trump’s efforts to boost economic growth toward 4% were taken seriously, long-term interest rates should logically rise to 6% or above.

Sooner or later, the gap between bond yields and nominal GDP growth will presumably close. Either growth will weaken dramatically, as implied by bond-market expectations, or interest rates will rise dramatically, because bond-market expectations turn out to be completely wrong.

And yet neither of these things will necessarily happen in the next year or two. GDP growth is unlikely to weaken, given the big fiscal stimulus, very high business confidence, and strong growth in personal incomes resulting from rapid job growth.

But what about bond yields? If the US economy continues growing as expected, is it not inevitable that long-term interest rates will surge to much higher levels, knocking the highly leveraged US, and ultimately the entire world economy, off its current path of strong and stable growth?

This seems unlikely, at least in the year ahead, for several related reasons. First and foremost, the belief in a “new normal” of anemic growth and low inflation is deeply embedded among investors and central bankers. After spending the decade since the financial crisis obsessing about secular stagnation and falling prices, investors and Federal Reserve officials will require many months or even years of consistent and incontrovertible evidence of inflation and higher growth to be convinced that deflationary conditions have genuinely reversed.

Even when investors accept the intellectual case for much higher bond yields, regulatory impositions on banks and pension funds, together with quantitative easing in Japan and Europe and other forms of financial repression, will ensure continuing demand for government bonds at prices far above any reasonable estimate of fundamental values.

The distorted pricing cause by regulatory pressures is amplified by a kind of conditioned response among bond investors. As inflation and interest rates have fallen steadily over the past 30 years, bond investors have been consistently rewarded for treating every temporary uptick in interest rates as a buying opportunity. This experience has created a Pavlovian reflex to “buy on dips” that can be broken only by many months or perhaps even years of negative experience. This reflex has been strongly apparent in the past two months. Whenever stock markets have fallen sharply, as they did in early February and again after Trump announced his trade sanctions on China, the bond-buying instinct became irresistible, bond prices rallied, and the resulting reductions in long-term interest rates stabilized stock markets.

At some point, the bond market’s Pavlovian behavior will stop, and long-term interest rates will move much higher. But until this happens, investors’ unshakable belief that low inflation is a permanent feature of economic reality will allow the US government to pursue increasingly inflationary policies. And the bizarrely low long-term interest rates set by complacent bond markets will provide a safety net for global financial markets – at least until complacency proves to be unsustainable.

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Bitcoin has tumbled overnight, back below $8,000, and is now down 48% year-to-date, as cryptocurrencies have accelerated lower this week amid the carnage in tech stocks.

Bitcoin’s dead-cat-bounce did not last long…

 

But the week has been a bloodbath for all cryptocurrencies…

And the overnight weakness is most interesting considering the PBOC appeared to ease back away from its blanket bans on cryptos somewhat. Bloomberg reports that the Chinese central bank will promote digital currency research and development, Deputy Governor Fan Yifei said at a national currency, gold and silver work conference, according to a statement on PBOC website.

Overnight also saw two Japanese crypto exchanges choose shutdown as opposed to regulatory compliance. As CoinTelegraph reports, Japan’s financial services regulator continues to reshape the country’s cryptocurrency exchange industry as two operators announce they are closing, local source Nikkei states March 28.

Two Japanese exchanges, Mr. Exchange and Tokyo GateWay, will cease trading once they have returned customer funds, according to Nikkei.

The news comes as financial regulator, the Financial Services Authority (FSA) challenges exchanges to prove their security credentials in the wake of Coincheck’s $530 mln hack in January.

As a result of FSA inspections and requests, several operators have opted to stop servicing the Japanese market, Cointelegraph previously reported.

Prior to their closure, Mr. Exchange and Tokyo GateWay were both in the process of securing a license as part of a scheme introduced by Japan in April 2017.

In a blog post March 29, the former confirmed it had withdrawn its application:

“While this is a regrettable result, at present we have determined that it is difficult to be in a state of readiness to be able to respond to changes in the virtual currency landscape, so we decided to withdraw the application for a virtual currency exchange business.”

Tokyo GateWay’s website is currently offline, with no official correspondence available to confirm the Nikkei report.

The FSA meanwhile continues to drip-feed new market players to Japanese consumers, with 16 exchanges obtaining a license since the scheme opened.

This week, internet giant Yahoo! announced it would seek to launch its own operation by April 2019.

However, that was a drop in the ocean compared to the carnage suffered in cryptos in Q1, with Bitcoin, Litecoin, and Thereum practically cut in half, and 23017’s best performer, Ripple, crashing over 70%…

This is officially the worst quarter for Bitcoin in its history…

 

And while one alternative currency tumbles, another rises for the 3rd straight quarter…

Which only compounds the concerns of the looming ‘death cross’ in Bitcoin (when the 50DMA crosses below the 200DMA)…

 

But there is light at the end of this ugly tunnel of doom for cryptos. CoinTelegraph reports that Cryptocurrency investment app Abra’s CEO forecast that “all hell will break loose” in Bitcoin and altcoin markets this year in a fresh mainstream media interview March 28.

image courtesy of CoinTelgraph

Speaking to Business Insider two weeks after the startup announced it had raised $40mln in new funding since October, CEO Bill Barhydt said western institutional money would begin to “dip its toes” into crypto assets in 2018.

In doing so, Barhydt continues a popular narrative that institutional investors ‘waiting’ for an opportune moment will transform Bitcoin and major altcoin price performance.

Bitcoin continued to sink towards fresh bi-weekly lows March 29, circling around $7600 according to Cointelegraph’s price tracker. Ethereum, which has lost 52% of its value in a month, is set to challenge $400 a coin.

“I talk to hedge funds, high net worth individuals, even commodity speculators. They look at the volatility in the crypto markets and they see it as a huge opportunity,” Barhydt nonetheless reports adopting a conspicuously bullish tone.

“Once that happens, all hell will break loose. Once the floodgates are opened, they’re opened.”

Even cryptocurrency industry analysts have recently aired caution about short-term price prospects for Bitcoin.

Regular commentator Tone Vays had warned during recent highs that until resistance around $12,000 was cleared, prices would continue to post lacklustre performance – and could even drop lower than current levels.

For Barhydt, however, future potential takes prevalence over short-term volatility between $6000 and $12,000.

“There really is zero large-scale institutional money from the west in crypto right now. That is happening in Japan,” he continued.

“…We’re getting closer and closer to real clarity in the West that it’s OK putting half a percent of your assets into crypto.”

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Congressional investigators looking into the origins of Special Counsel Mueller’s Russia probe believe they’ve found a smoking gun that could justify the appointment of a special counsel to investigate whether the Obama administration exerted undue influence over the FBI.

A series of text messages between FBI Special Agent Peter Strzok and DOJ lawyer Lisa Page have revealed the involvement of Denis McDonough, Obama’s chief of staff, John Brennan, Obama’s CIA director, and former Senate Majority Leader Harry Reid in helping create an atmosphere of paranoia that gave them the political cover to launch the Russia probe back in the summer of 2016.

Denis McDonough

The investigators who leaked the information to Fox said the texts between Strzok and Page “strongly” suggest coordination between the White House, two independent intelligence agencies, and a Democratic Congressional leader. That would “contradict” the Obama administration’s claims of non-involvement.

The texts tell of former Deputy FBI Director Andrew McCabe being concerned with “information control,” and suggest a plot to leak details of the FBI’s incipient investigation to both the White House and Reid. Brennan also became involved in agitating for an investigation, though his agency was supposed to be operationally separate from the FBI.

Page texted Strzok on Aug. 2, 2016, saying: “Make sure you can lawfully protect what you sign. Just thinking about congress, foia, etc. You probably know better than me.”

A text message from Strzok to Page on Aug. 3 described former FBI Deputy Director Andrew McCabe as being concerned with “information control” related to the initial investigation into the Trump campaign. According to a report from the New York Times, Brennan was sent to Capitol Hill around the same time to brief members of Congress on the possibility of election interference.

Days later, on Aug. 8, 2016, Strzok texted Page: “Internal joint cyber cd intel piece for D, scenesetter for McDonough brief, Trainor [head of FBI cyber division] directed all cyber info be pulled. I’d let Bill and Jim hammer it out first, though it would be best for D to have it before the Wed WH session.”

In the texts, “D” referred to FBI Director James Comey, and and “McDonough” referred to Chief of Staff Denis McDonough, the GOP investigators said.

One of Fox‘s sources said the information was “concerning” enough to justify launching an independent probe into the FBI’s role in launching the Trump investigation.

“We are not making conclusions. What we are saying is that the timeline is concerning enough to warrant the appointment of an independent investigator to look at whether or not the Obama White House was involved [in the Trump-Russia investigation],” a GOP congressional source told Fox News.

Naturally, coordination between political appointees at the White House and DOJ investigators would cast doubt on the entire Russia probe, Fox‘s sources said. 

The following day, Aug. 30, 2016, Strzok texted Page: “Here we go,” sending a link to the Times report titled, “Harry Reid Cites Evidence of Russian Tampering in U.S. Vote and seeks FBI inquiry.”

The texts also detail the Bureau and Brennan’s role in feeding information to Reid, which inspired him to write a letter to the FBI demanding an investigation be launched. That letter was later leaked to the press. The Reid letter, Fox said, provided political cover for the bureau when it tried to justify launching an investigation into Trump as early as July 2016.

In other words, the FBI was well-versed in how to strategically use “leaks” to manage information control and wash its hands over any potential collusion allegations… with the exception of course of the texts that reveal how the plot was hatched in the first place.

The question now is whether McCabe, who was fired two weeks ago, will be called in to testify on these stark allegations.

One thing is for certain: The texts provide the clearest sign yet into the Obama administration’s role in helping get the Russia probe off the ground in an attempt to roadblock Trump’s administration, all the while Obama chose to do nothing about reports of Russian attempts at election interference.

We imagine we’ll hear more about this in the coming days.

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UMich Sentiment slid from its earlier flash print, but at 102.0 was the highest since April 2004

 

Notably, ‘current conditions’ hit a new record high, while hope dipped a little…

 

Most notably, as UMich’s Curtin points out, all of the March gain in the Sentiment Index was among households with incomes in the bottom third (+14.1); those in the middle third were unchanged, while the Index fell among households in the top third (-5.6)

“Households with incomes in the top third cited significantly greater concerns with government economic policies than last month, especially trade policies, with net references falling from +31 to just +1, offsetting their positive reactions to tax policies”

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Barclays shares jumped Thursday after the DOJ handed the UK bank a major victory in its years-long struggle to settle allegations of malfeasance dating back to the financial crisis.  As part of the deal, Barclays has agreed to pay a $2 billion civil penalty to settle allegations of fraudulent conduct relating to Barclays’ securitization, underwriting and sale of RMBS in 2005-2007.

The DOJ sued Barclays for fraud back in December 2016 after the bank refused to pay a much larger fine sought by the Obama administration. Last year, Bloomberg reported that the bank wouldn’t pay more than $2 billion to settle the matter. Conveniently, the Trump DOJ was more amendable to its demands, and additionally, the civil settlement will save the bank from a lengthy trial.

Additionally, two former Barclays executives have agreed to pay $2 million as part of the settlement, which comes after two former Barclays traders were acquitted in a retrial on charges they plotted to rig Libor.

The good news for Barclays, is that the settlement resolves all outstanding DOJ civil claims; the only downside is that it will negatively, if modestly, impact Barclays’ Common Equity Tier 1 ratio as of Dec. 31, 2017, by about 45 basis points, although not enough to impair the bank’s ability to pay a dividend, and the bank confirmed its intention to pay shareholders 6.5p for 2018.

Barclays shares spiked to their earlier highs on the news, but the move has since faded a bit.

The DOJ’s full statement below:

Barclays Agrees to Pay $2 Billion in Civil Penalties to Resolve Claims for Fraud in the Sale of Residential Mortgage-Backed Securities

The United States has reached agreement with Barclays Capital, Inc. (NYSE: BCS) and several of its affiliates (together, Barclays) to settle a civil action filed in December 2016 in which the United States sought civil penalties for alleged conduct related to Barclays’ underwriting and issuance of residential mortgage-backed securities (RMBS) between 2005 and 2007. Barclays will pay the United States two billion dollars ($2,000,000,000) in civil penalties in exchange for dismissal of the Amended Complaint.

Following a three-year investigation, the complaint in the action, United States v. Barclays Capital, Inc., alleged that Barclays caused billions of dollars in losses to investors by engaging in a fraudulent scheme to sell 36 RMBS deals, and that it misled investors about the quality of the mortgage loans backing those deals. It alleged violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), based on mail fraud, wire fraud, bank fraud, and other misconduct.

Agreement has also been reached with the two former Barclays executives who were named as defendants in the suit: Paul K. Menefee, of Austin, Texas, who served as Barclays’ head banker on its subprime RMBS securitizations, and John T. Carroll, of Port Washington, New York, who served as Barclays’ head trader for subprime loan acquisitions. In exchange for dismissal of the claims against them, Menefee and Carroll agree to pay the United States the combined sum of two million dollars ($2,000,000) in civil penalties.

The settlement was announced by Richard P. Donoghue, United States Attorney for the Eastern District of New York, and Laura S. Wertheimer, Inspector General, of the Federal Housing Finance Agency Office of the Inspector General (FHFA-OIG).

“This settlement reflects the ongoing commitment of the Department of Justice, and this Office, to hold banks and other entities and individuals accountable for their fraudulent conduct,” stated United States Attorney Donoghue. “The substantial penalty Barclays and its executives have agreed to pay is an important step in recognizing the harm that was caused to the national economy and to investors in RMBS.”

“The actions of Barclays and the two individual defendants resulted in enormous losses to the investors who purchased the Residential Mortgage-Backed Securities backed by defective loans,” stated FHFA-OIG Inspector General Wertheimer. “Today’s settlement holds accountable those who waste, steal or abuse funds in connection with FHFA or any of the entities it regulates. We are proud to have partnered with the U.S. Department of Justice and the U.S Attorney’s Office for the Eastern District of New York on this matter.”

The scheme alleged in the complaint involved 36 RMBS deals in which over $31 billion worth of subprime and Alt-A mortgage loans were securitized, more than half of which loans defaulted. The complaint alleged that in publicly filed offering documents and in direct communications with investors and rating agencies, Barclays systematically and intentionally misrepresented key characteristics of the loans it included in these RMBS deals. In general, the borrowers whose loans backed these deals were significantly less creditworthy than Barclays represented, and these loans defaulted at exceptionally high rates early in the life of the deals. In addition, as alleged in the complaint, the mortgaged properties were systematically worth less than what Barclays represented to investors. These are allegations only, which the Defendants dispute, and there has been no trial or adjudication or judicial finding of any issue of fact or law.

The government’s case has been handled by this Office’s Civil Division. Senior Counsel F. Franklin Amanat, and Assistant United States Attorneys Matthew R. Belz, Charles S. Kleinberg, Evan P. Lestelle, Matthew J. Modafferi, Josephine M. Vella and Alex S. Weinberg have been in charge of the litigation. Mr. Donoghue thanks the FHFA-OIG for its assistance in conducting the investigation in this matter.

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For the 3rd straight month, Chicago Purchasing Managers are losing their religion as the business barometer is battered to 12-month lows (with the biggest drop in three years).

Chicago PMI printed a gravely disappointing 57.4 in March (against expectations of a rise to 62.0 from February’s 61.9 print)…

 

This is below the lowest analyst’s estimate… (Forecast range 59 – 66 from 30 economists surveyed)

 

Only 4 components rose versus last month

• Business barometer rose at a slower pace, signaling expansion

• Prices paid rose at a faster pace, signaling expansion

• New orders rose at a slower pace, signaling expansion

• Employment rose at a faster pace, signaling expansion

• Inventories rose at a faster pace, signaling expansion

• Supplier deliveries rose at a faster pace, signaling expansion

• Production rose at a slower pace, signaling expansion

• Order backlogs rose at a slower pace, signaling expansion

• Business activity has been positive for 12 months over the past year.

Thus, Chicago PMI confirms our earlier note that stagflationary indicators are flashing red (as production and new orders slow but prices paid surge)

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