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This rally looks complete.

The S&P 500 has broken the rising wedge pattern that has sustained it throughout the bounce from the February lows.

This is hitting as new evidence suggests corporate profits are collapsing at a pace not seen since the 2008 meltdown.

This type of collapse does not occur outside of recessionary periods.

The US data has yet to show a recession hitting because:

1)   Most of the initial data points are too high and will be revised down in the near future.

2)   Recessions are usually announced when they’re already close to over for political purposes.

Regarding #1, consider the collapse in the Fed’s GDPNow measure. That initial great reading for 1Q16 of 1.4% is now showing a growth pace of only 0.6%.

 

This will likely be revised even lower in the coming months.

Regarding #2, recessions are usually announced towards their end. The reason? The aforementioned revisions and because there is considerable political pressure to portray the economy in the best light possible.

Consider the 2007-2008 meltdown. The recession was only announced in December 2008 once the entire economy was completely imploding.

The National Bureau of Economic Research said Monday that the U.S. has been in a recession since December 2007, making official what most Americans have already believed about the state of the economy…

Source: CNN MONEY (December 1, 2008)

What does this mean?

Stocks are a mere 4% off their all-time highs at a point in which corporate profits are collapsing at a 2008-pace. The economy is very likely already in a recession, though it won’t be announced until next year at the earliest.

Buckle up, a crisis is coming.

If you’ve yet to prepare for a bear market in stocks we just published a 21-page investment report titled Stock Market Crash Survival Guide.

In it, we outline precisely how the crash will unfold as well as which investments will perform best during a stock market crash.

We are giving away just 100 copies for FREE to the public.

To pick up yours, swing by:

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

via Zero Hedge http://ift.tt/1VQ36nT Phoenix Capital Research

Submitted by Jeffrey Snider via Alhambra Investment Partners,

There is one part missing from the narrative sketched out in home resales being subjected to monetary imbalance. It is a compelling explanation for what we find as the most striking aspect of existing home sales, namely the curious lack of depth among sellers. It’s as if despite rising prices there is a seller strike where a significant part of what should be that market just will not participate.

As I outlined a few days ago, the likely explanation is serious stratification. In other words, prices are rising much faster in the more expensive segments leaving those in either starter homes or still the lower tiers unable to make the usual jump that accompanies economic mobility. Because they aren’t buying up, they aren’t selling despite rising prices which are supposed to signal at least stable demand.

That’s the part that demands further examination. There is another subset of housing that is supposed to act in that circumstance – new homes. If there was not enough supply via resales as the NAR suggests, thwarting a more consistent and healthy home market, then home builders should have been the answer. As noted Monday, this is not an imbalance that just showed up, it has been a factor for at least several years (and in all likelihood throughout the QE-inspired mini-bubble that favored “investors” over potential resident owners). Where are the home builders?

If there is demand for even starter homes well above the visible and attainable supply, that is exactly the market imbalance that should favor new construction. Instead, outside of what increasingly looks to be a one-off rise in new home sales in 2014, home sales have been rather stagnant. All the way back for June 2013, the Commerce Department has been estimating new home sales at around 500k almost as if that were an anchor or fixation. There have been revisions here and there redrawing the exact trajectory, but for the most part ever since then new home sales have been stuck around that level – especially since the start of 2015 (as if that were coincidence).

Given the issues here and the potential signals for imbalance, 500k wouldn’t even be that much of a supply factor. That level has been at the extreme lower edge of the historical range once signaling recession-type conditions.

Since home builders react to actual demand rather than the published unemployment rate, that can only mean two potential deficiencies; either there is some demand that would be consistent with what is suggested via resales, those looking for starter or lower tier homes, only they can’t obtain mortgages; or there just isn’t demand at the lower end in anything resembling the more frenzied luxury markets (bifurcation). In reality, the past three years might be explained as a combination of the two, where there was once some demand around 2013 and into 2014 but banks were at that time reeling from taper and cutting all things mortgage. By the time finance stabilized though at a lower volume (maybe accounting for the mini-rebound in the current estimates of 2014) it was just in time for the “rising dollar” and the economic consequences captured by all economic accounts except the unemployment rate.

To my analysis, that would seem to offer the most complete explanation for what seems to be happening in the whole of the real estate market. The gap from resales suggests that home builders should be nearing a frenzy, constructing at a pace more toward the upper end of the historical range rather than continuing along the bottom (if still better than the worst of the housing crash); only there isn’t any rush to build and sell new dwellings (apart from rentals). It is both the bifurcation that erupts anywhere monetary policy manages some intervention, as well as consistent with what we actually see in the economy outside Janet Yellen’s imagination.

It is very much like what seems to be taking place in autos except with unusual constraint this time; perhaps the housing bust had an effect after all? In other words, economic conditions are deficient such that the only way, at the increasing margins, people are buying automobiles is that of subprime (insufficient income and prospects); in housing, that is also the case but subprime is mostly dead (even if some are experimenting with a resurrection), meaning that there are instead no sales or at best minimal volume. Autos reach record levels, houses curiously do not even though both are drawing from largely the same pool. In both cases, it doesn’t suggest anything about positive economic prospects let alone the “best jobs market in decades.” In terms of housing, if there is a “hole” in the overall supply, new homes to resales, it seems a reflection of true demand conditions (willingness and ability).

via Zero Hedge http://ift.tt/22UpDSk Tyler Durden

Earlier today we said that following the abysmal January spending data revision as shown in the chart below:

 

… that “the Atlanta Fed will have no choice but to revise its Q1 “nowcast” to 1.0% or even lower, which would make the first quarter the lowest quarter since the “polar vortex” impacted Q1 of 2015, and the third worst GDP quarter since Q4 2012. It means one-third of already low Q1 GDP growth has just been wiped away.”

It was “even lower.”

Moments ago the Atlanta Fed which models concurrent GDP, slashed its Q1 GDP from 1.4% (and 1.9% last week) to a number not even we expected: a paltry 0.6%, which would match the “polar vortexed” GDP print from Q1 2015.

Should the number drop even more, will be the lowest since Q1 of 2014 when the US economy suffered its most recent contraction of nearly -1%.

This is what the Atlanta Fed said:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 0.6 percent on March 28, down from 1.4 percent on March 24. After this morning’s personal income and outlays release from the U.S. Bureau of Economic Analysis, the forecast for first-quarter real consumer spending growth fell from 2.5 percent to 1.8 percent. The forecast for the contribution of net exports to first-quarter real GDP growth declined from –0.26 percentage points to –0.52 percentage points following this morning’s advance report on international trade in goods from the U.S. Census Bureau.

 

Here is another way of visualizing just how bad things suddenly are in the US economy, and no – this time one can’t blame ther weather. This is the lowest GDP estimate by the Fed going back to May 2015.

 

There is one problem with even this sharply reduced number: the downward revised Atlanta Fed’s consumer spending estimate of 1.8% is still about 0.5% higher than where the hard data says it should be, suggesting when all is said and done, Q1 GDP may be 0% or negative, especially if the long overdue (and once again delayed) inventory liquidation finally takes place.

* * *

Finally, there is an even bigger problem here: see if you can spot it when looking at the Atlanta Fed index vs lagged US macro…

 

… and lagged US stocks.

 

And with, Janet, the ball is in your “rate-hiking” court.

via Zero Hedge http://ift.tt/22UpDBW Tyler Durden

Headlines will crow of the seasonally-adjusted 'beat' of expectations for the Dallas Fed survey (-13.6 vs -25.8 exp) but this is the 15th month in contraction (below 0) – something only seen in recession. Scratching below the surface we see employees, workweek, and capex all in contraction and forward expectations for new orders and employment tumbled. Perhaps that reality is what drove one respondent to rage, "anyone who says the economy is not in recession is peddling fiction."

 

 

 

The Respondents…

The instability of the domestic oil and gas exploration and production activity continues to wreak havoc on demand for our products. 

 

Uncertainty is the main issue regarding oil pricing and refining cash flows.

 

The positive March versus February comparison (as well as the six-months-ahead view) is due entirely to an extremely poor February. Volume remains well below monthly volume in the fourth quarter. Headcount was reduced in February, allowing remaining staff to return to a 40-hour workweek.

 

We are expanding due to longer-term strategy. While we are spread among a plethora of general manufacturing nationwide, we are experiencing a major falloff of inquiries and orders in Texas directly related to the restricted price of oil.

 

As a long-lead-time capital equipment manufacturer, we are working off backlog. Anyone who says the economy is not in recession is peddling fiction.

 

It appears the oil and gas business won't be back for 12–18 months. We are actively pursuing other industries, with varying degrees of success depending on the industry. We may very well survive.
We are looking into new markets as the deepwater drilling is pretty slow.

 

We are generally just bumping along in a weak macro environment.

 

Again, the dollar is too high affecting several of our customers, therefore creating a significant impact on our business. The uncertainty in business is huge, and everyone is holding cash including ourselves. We are not making investments on growth or capital expenditures at this time. Oil prices are also creating a major problem in the oil and gas industry, with consolidations and layoffs happening very frequently.

 

We expect the weakening in the energy sector to ripple through to our primary end users in Texas. So far activity statewide has maintained some strength, but we are cautious that it will start to have a broader impact later in the year and into 2017. The degree to which the Texas economy holds up to the trouble in energy will be a testament to the alleged diversification in the state. We are preparing for the worst and hoping for better.

 

Our export business continues to be our biggest challenge. The strong dollar will be an obstacle to growth for the foreseeable future. We are simply growing less competitive to our European challengers.

 

One of our customers has changed its terms, which has caused us to lose coolers at the front of the store. The coolers are really the only place in the store where our gross margin exceeds our cost of service. Couple this giant hit with a general 1–3 percent long-term decline in soft drink sales, and the next year looks bleak.

 

We have been told that companies are cutting their advertising budgets that affect printing. We are getting more phone calls from press and bindery operators looking for work. I am hoping this slowdown is short lived and that the economy improves in the next few months.

 

Our turnover in the past year has been triple of the previous nine years: competitors poaching employees, retirements, people we put a ton of training into for two or three years moving out of state for family reasons, and other reasons. We're trying to build staff for new customers coming on board but can’t seem to hold our gains. It is very frustrating. I'm more optimistic about the year than I was in January.

 

We have picked up in March but only because February was so dismal. We were super slow with many 3.5 to four-day workweeks in the plant. Activity is trying to pick up, and it appears we will be busier in the coming months than we have been.

But apart from that, everything is awesome.

via Zero Hedge http://ift.tt/1ogKcJ8 Tyler Durden

Over the past 12 months, America has had front row seats for a real-life experiment with across-the-board wage hikes.

In January of last year, a grinning Doug McMillon appeared in a video message posted to Wal-Mart’s website to announce that the world’s biggest retailer was set to implement one of the “largest single-day, private-sector pay increases ever.”

Now first of all, McMillon and the rest of the executive suite probably should have reread the statement in quotes above and asked themselves whether that sounded like something that was likely to turn out well. Wal-Mart employs a whole lot of people, and giving everyone a raise is the kind of thing that can end up having unintended consequences – especially when your business runs on the thinnest of margins.

But Wal-Mart pressed ahead anyway and almost immediately, things started to unravel. First, Bentonville moved to squeeze suppliers by forcing them to plow their excess cash into savings rather than in-store advertising. Next came storage fees and eventually, Wal-Mart even tried to compel vendors to pass along any savings they might have recognized from the yuan devaluation.

But squeezing the supply chain proved inadequate to make up the money spent on higher wages and so, Wal-Mart did what anyone with any common sense knew they would end up doing: they fired thousands of people and closed hundreds of stores. Or, visually:

A valuable lesson was learned by all. Or maybe not, because over the weekend, California lawmakers and labor union reps struck a deal to raise the statewide minimum wage to $15/hour.

“The deal was confirmed Saturday afternoon [and the] compromise ends a long debate between Democratic governor Jerry Brown and some of the state’s most powerful labor unions,” the LA Times writes, adding that “for Brown, it’s political pragmatism; numerous statewide polls have suggested voters would approve a minimum wage proposal — perhaps even a more sweeping version — if given the chance.”

Here’s how it will work: the statewide minimum will rise from $10 an hour to $10.50 on Jan. 1, 2017, with a 50-cent increase in 2018 and then $1-per-year increases through 2022. Here’s more from the Times:

Sources say the Legislature could vote on the wage compromise as soon as the end of next week by amending an existing bill on hold since 2015. Its passage would place California ahead of a minimum wage increase now being considered in New York, and would probably add fodder to the raucous presidential race. Both Sen. Bernie Sanders of Vermont and former Secretary of State Hillary Clinton have endorsed the goals of a nationwide campaign to raise wages to $15 an hour, and advocates say swift action in California could force both Democratic candidates to embrace what would be a more aggressive plan of action.

 

In January, Brown warned of a $4-billion-a-year increase in state budget expenses if public-sector care workers — who are paid the minimum wage — were to receive $15 an hour. The gradual ramping up of wages and benefits in the new agreement is more aligned with Brown’s larger budget philosophy.

“Raising the minimum wage to fight income inequality has cropped up on many Democratic candidates’ agendas ahead of the November presidential, congressional and state elections,” Reuters wrote this morning. “But the idea has drawn fierce opposition from conservatives and some business groups, who have said a higher minimum would harm small businesses and strain the budgets of government agencies forced to pay more to workers.”

Yes, this could “harm small businesses.” Businesses like the Marmalade Café which has seven locations. “First, you have to raise prices, otherwise you’ll be out of business,” owner Selwyn Yosslowitz told the Times. So higher prices for diners. That’s “first.” We imagine you can guess what’s “second.” “We will try to re-engineer the labor force,” Yosslowitz said. “Maybe try to reduce the number of bus boys and ask servers to bus tables.” In other words: “Maybe” we’ll fire some folks and the people who keep their jobs will have to be more efficient. 

Yosslowitz also worries about the dynamic we’ve discussed over the course of documenting Wal-Mart’s experience with wage hikes: namely that you have to preserve the wage hierarchy. You can’t hike wages for the lowest paid workers and then expect those further up the pay ladder to be satisfied with what they made before. “The other big worry [is] that employees already making $15 an hour will demand a raise as well”, Yosslowitz said. “It’s a chain reaction.”

Indeed, the problems with haphazard wage hikes are now readily apparent even to those who stand to benefit the most from the new legislation. Take Miguel Sanchez of Highland Park who works two jobs making tortillas. “It’s good for workers, but I imagine this is not going to be good news for employers and small businesses,” he says. “Will the cost of things go up?” he asks. “Are employers going to cut back hours because they can’t afford it? I worry.”

So even tortilla makers get it, but like Wal-Mart, “some folks” will need to actually see the layoffs before they’ll concede that you can’t cheat economic truisms and that’s really a shame for the people who will lose their jobs in the meantime. 

Of course how much you earn and even whether or not you have a job at all only matters to the extent that “shit” costs money, which is why it might be a good idea to just go ahead and vote for “A Future To Believe In”…

via Zero Hedge http://ift.tt/1URnRju Tyler Durden

With stock markets roller-coasting by the most on record, February pending home sales rose 3.5% MoM (seasonally-adjusted) dramatically beating expectations. In fact, sales spiked 29.5% MoM (non-seasonally-adjusted) – the best February spike ever. Price gains have slowed notably, which is being cheered by NAR’s Larry Yun, but notably the majority of the sales surge in Feb was driven by an 11.4% spike in The Midwest (biggest since Dec 2008).

Panic buying homes in Feb:

Lawrence Yun, NAR chief economist, says pending sales made promising strides in February, rising to the highest index reading since last July (109.8).

“After some volatility this winter, the latest data is encouraging in that a decent number of buyers signed contracts last month, lured by mortgage rates dipping to their lowest levels in nearly a year and a modest, seasonal uptick in inventory,” he said.

 

“Looking ahead, the key for sustained momentum and more sales than last spring is a continuous stream of new listings quickly replacing what’s being scooped up by a growing pool of buyers. Without adequate supply, sales will likely plateau.”

 

According to Yun, the one silver lining from last month’s noticeable slump in existing-home sales was that price appreciation lessened to 4.4 percent, which is still above wage growth but certainly more favorable than the 8.1 percent annual increase in January.

 

“Any further moderation in prices would be a welcome development this spring,” adds Yun. “Particularly in the West, where it appears a segment of would-be buyers are becoming wary of high asking prices and stiff competition.”

So now Larry prefers lower prices?

Finally, something curious: the entire February surge came from the “Midwest”

• The PHSI in the Northeast declined 0.2 percent to 94.0 in February, but is still 12.6 percent above a year ago.
• In the Midwest the index shot up 11.4 percent to 112.6 in February, and is now 2.5 percent above February 2015.

Best Pending Home Sales in MidWest in 10 years, biggest MoM spike since Dec 2008…

• Pending
  home sales in the South increased 2.1 percent to an index of 122.4 in
  February but are 0.4 percent lower than last February.
• The index in the West climbed 0.7 percent in February to 96.4, but is now 6.2 percent below a year ago.

So, according to realtors, there was an influx of new home purchases in Chicago? Why would we ever doubt that.

via Zero Hedge http://ift.tt/22UdsVv Tyler Durden