Wednesday, September 07, 2016

The US economy from 30,000 ft

 It's hard to overstate the degree to which we are in uncharted waters right now in the global economy.  Yes, US stocks remain near record levels but globally many economies remain stuck hovering just barely above recessionary levels despite 7 years of extraordinary efforts by global central banks and governments.  Consider the following data that has emerged in just the past couple of weeks....

The economy
* Class 8 truck orders - tractor trailers/dump trucks - have fallen on a year over year basis for 18 straight months.  They are back at the lowest levels in 5 years.  Some of this is the natural order cycle and some of this is attributable to reduced demand for trucking capacity.

*Earnings for the S&P 500 companies have fallen now for 5 consecutive quarters, while stocks remain at or near record highs.  The last time earnings fell like this was 2009.

* The year over year change in average hours worked has fallen to levels last seen in 2009 (So, 2008/9 will be a consistent theme).

* The US Nominal GDP growth year over year in 2016: 2.4%

In 2001: 2.4%
In 1990: 2.6%
In 1982: 2.9%

Why focus on those years?  They represent the LOW point of GDP growth yr over yr in the midst of the recessions.  So our current "growth" rates are equal to or below the worst growth in some of the most recent recessions.  Hmm...

* Rail volumes tumbled another 7% in the latest quarter and have fallen for 17 consecutive months.  This is principally driven by declining crude shipments but traditional rail freight is also declining.

The markets

* Most of the major US markets remain within a 1% of their all-time highs.  Despite the plethora of data that indicates a slowing US economy.  The belief that the Federal Reserve will (and CAN) continue to support equity prices is now the only investment thesis that matters.

* In the past 40 days, S&P 500 has traded in a range of only 1.77% (using closing prices). That is the tightest 40 day range EVER going back to 1928 (did anything happen in 1929?).  Increasingly, the markets are swinging + or - 0.5% multiple times per day but by the end of the day, the markets are nearly flat.  This is in the face of a tremendous amount of data that should have moved stocks meaningfully.  This complacency is troubling.

* Earnings estimates for the coming 12 months of the largest stocks in the world have a 20% spread versus their actual earnings.  This is the widest margin since 2009 (hmm, there's that year again).


*The 7th largest container shipping company filed for bankruptcy last week.  The impact on global supply chains will be felt for some time.  When your favorite made in China toy isn't on the shelf this Christmas season, you'll know who to blame.


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