Some Cold Water In The Face Of A Manic-Depressive Market That Has Overdosed On Lithium
by Tyler Durden
In an amusing turn demonstrating just how manic-depressive the market has become, stocks have gone from fearing an all out onslaught in Europe, to complete euphoria, based on a favorable ADP payroll number (which in the past several months had been broadly ignored due to its consensus misses). What is even more stunning is how the two main rumors that forced the market to surge: that Trichet was commencing a debt monetization program (refuted) and that the IMF would increase its funding contributions to Europe (mysteriously leaked by a “source” in the administration to Reuters, then also promptly refuted but only after it had already raised stocks another 50 bps) ended up being false. In the meantime we got an initial claims number that was weaker than expected, and an ISM that missed consensus, and a pending home sales that was so low it could only go higher, and which will likely result in half of the transactions falling due to the spike in mortgage rates. But hey: at least Goldman managed to boost the value of the stock portion of its bonuses, after the firm upgraded the economy, but more importantly, all banks, itself most certainly included.
It is yesterday’s ISM that we wanted to focus on. Much as we hate to rain on the parade, we (unlike Princeton educated Ph.D. economists) continue to firmly believe that the market does not make the economy, especially when even your cab driver knows it is all a ponzi scheme (or, rather, it’s a buy the dip scheme). As John Lohman, and David Rosenberg subsequently, remind us, the spread between the inventory and the new orders components of the manufacturing ISM came at a spread unseen in over 30 years, and a phenomenon which without fail leads to at least a sub 50 print in the ISM, if not outright (re)recession.
Here is how Rosenberg described this variance: