Down goes the Dow

While jobless claims look rosy, Philly Fed's employment index plunged by the most since May 2013 as the headline survey extended its period of sub-50 contraction to six straight months - the longest streak outside of a recesssion in history. Across the board the underlying components were weak with current all tumbling led a collapse in average workweek, employment, and new orders. Worse still, the "hope" index plunged to its lowest since Nov 2012.

6 straight months of contraction flash red for recession...

WASHINGTON -- U.S. companies advertised more available jobs in December and more Americans quit, trends that could lift wages in the coming months.

The number of job openings jumped 4.9 percent to 5.6 million, the most since July, the Labor Department said Tuesday. And quits increased 6.9 percent to nearly 3.1 million, the highest in more than nine years.

Starbucks Baristas demanding higher wages, same for McD's workers, as politi sci majors enter the work force in large numbers....fueling the American economic demand for more apps and Kardashian docu dramas....all the while Kanye West asks for a billion dollars from Mark Zuckerberg....

Hope and change in action......

Igy: "Question: how has the fed taken on liabilities of defaulted borrowers?

Answer: US Government through Treasury and Federal Reserve bought billions of underwater mortgage bonds. The Federal government owns Fannie Mae and Freddie Mac.

Question: You mean the bailouts? That's over and done and paid back, no?

Answer: The US Government took over AIG, and GM. That same government forced the reorganization of GM Capital as ALLY Bank. I would consider any of that paid back or in fact over, at least not for any of their investors, past or present."

Exactly the same things that I was going to respond with, after reading agip's post.

POTO we are not tinfoil hat people, they believe that there is some underlying nefarious conspiracy to achieve some sinister or malevolent purpose. In general, we're just going over known facts and speculating as to future effects, not past or current motivations.

Maserati,

I have a similar view of your comments to POTO. I think those at the Fed and other Central Banks are well meaning people. The problem is they are academics applying theoretical principles to a real world. When one theory doesn't pan out they twist it into another more untested form until they have created a witches brew of unpredictable consequences. We may be experiencing some negatives of unwinding of these policies.

Igy

Regarding the fed's role in malinvestment, the fed obviously has a role in money creation. As I understand it, money has 2 essential qualities: 1) store of value, 2) medium of exchange.

As a store of value, it should reflect the wealth of a nation, somehow characterized. Whether through buying treasuries or other assets, the fed creates money, the amount of which should somehow reflect the value of that which is being purchased. The treasury value paid for is, as far as I can tell, the value of actual future labor and effort by the citizenry. The asset value paid for is reflective of the underlying asset.

The problem is when the fed buys something and then essentially "re-values" it, which I understand is what they did with bad debt. They buy something with a value of 1 for a price 2, and then arbitrarily adjust the value to a level of 2, to match the price they paid.

Such re-valuation is not achieved via market forces, it is merely fiat, hence the tinfoil hat-wearers' term "fiat currency". IMO it is arbitrary, and cannot in the long-run withstand the effect that market forces will have on it. The market force is incremental, and every time an increment is added, another intervention must be executed to counter that market force.

Whether the battle between market forces and fiat is a lopsided one remains to be seen. What we have been seeing is a force-and-response mechanism, termed by some as "kicking the can down the road". Both market forces, and fiat decisions, have piled up hugely in the past 10 years.

As far as the fed's role in creating money for use as a medium of exchange, this is the liquidity we so often hear about, right? How many times has the government taken on private debt, or bought things from the private sector, to take things off private sector balance sheets, in the name of "freeing up capital"? All the time. Is that a good thing? Sure, if you are a bank and you live and die by deploying capital. IMO it is a form of government-sponsored leverage.

Is it an economically good thing, though? Obviously a certain amount of freely-deployable capital is required, but how much? That's the big topic of discussion, with those who benefit from more, arguing for more, and their lobbies are strong inside the beltway. There is a huge conflict of interest at work here, though, which arose from bank deregulation, and the lobby now has the policy-makers over a barrel, essentially.

Incidentally, the Austrian experiment in decoupling medium of exchange from store of value makes for good reading, especially in this era where we see negative interest rates.

Maserati,

Agreed. The real danger comes when the markets determine that central banks can no longer push the string. We saw some of that the previous week when Japan went to negative rates and things began to break. I think the market is becoming more skeptical of central bank intervention and we are entering a period where the undressing begins.

Igy

How can we discuss central banks without talking about Hungary?

http://www.bloomberg.com/news/articles/2016-02-18/hungary-central-bank-stockpiles-guns-bullets-citing-terror-risk

Totally hyperbolic article, the clickbait headline makes it sound like they are hoarding guns and ammo.

Out for the rest of the day.

If the

Energy sector is excluded, the blended revenue growth rate for the S&P 500 would jump to 0.6% from

-3.5%.

-Factset

agip,

FactSet uses the fiction of operating earnings or non-GAAP earnings.

Igy

Ghost of Igloi wrote:

agip,

FactSet uses the fiction of operating earnings or non-GAAP earnings.

Igy

that's why I cited a revenue number, Igs - just for you!

agip,

OK, revenue, got it. From S&P that gives the true picture of how S&P 500 companies are doing.

"With 83.8% of the Q4 2015 earnings reported, 68.7% of the issues are beating estimates (the historical rate is two-thirds), but only 37.9% beat As Reported GAAP rule based earnings estimates and less than half, 48.1%, beat sales estimates

Explained ‘responsibility’ for any short fall on the cost side includes currency costs and a growing list of special one-time items (never to be repeated, of course)

On the income side, helping earnings, are the ‘difficult decisions made’ by companies under the heading of cost-cutting (as layoffs and location changes appear to be on the rise)"

Igy

agip,

S&P 500 4Q 2015 on track to be the weakest quarterly earnings since 4Q 2012, some three years ago. The S&P 500 closed that quarter at a level of 1426. If earnings track stock valuation what does that tell you?

Igy

Ghost of Igloi wrote:

agip,

S&P 500 4Q 2015 on track to be the weakest quarterly earnings since 4Q 2012, some three years ago. The S&P 500 closed that quarter at a level of 1426. If earnings track stock valuation what does that tell you?

Igy

do earnings and stock valuation track together?

not really - stocks are valued for future cash flows and earnings, not past cash flows and earnings. But yes valuations have come down with earnings - they are below 25 year averages now by most measures. They used to be above 25 year averages by most measures.

Clearly investors believe that 14.7x future 12 month earnings is a fair price for stocks. But I know you don't.

agip,

If future earnings are falling then the opposite happens, right?

By the way, the current S&P 500 PE is the following: 1919 / $90.57 = 21.18. So your future 12 months earnings is really a bunch of Wall Street baloney, and it's spoiled baloney at that.

Igy

Ghost of Igloi wrote:

agip,

If future earnings are falling then the opposite happens, right?

By the way, the current S&P 500 PE is the following: 1919 / $90.57 = 21.18. So your future 12 months earnings is really a bunch of Wall Street baloney, and it's spoiled baloney at that.

Igy

investors feel earnigns will start rising in the 2q or 3q

fair point on the baloney of earnings

Maserati wrote:

POTO we are not tinfoil hat people, they believe that there is some underlying nefarious conspiracy to achieve some sinister or malevolent purpose. In general, we're just going over known facts and speculating as to future effects, not past or current motivations.

I find this laughable given, for example, your reaction on this thread to things like employment numbers published by the government. You are not to be taken seriously by rational people. My fear is that you may have turned Igy to the dark side. That would be too bad.

agip,

Investors felt that way Friday,Tuesday and Wednesday. I should probably say high frequency traders were feeling that way. Today not so much and perhaps Friday even less, who knows. But my bet is earnings continue to fall and the analyst community continue to mark their year end S&P 500 earnings and targets down. That is how the chicken game is played rather than having a real gutty opinion.

Igy