Friday, September 26, 2008
This market just gets more and more surreal. Yesterday saw the release of not one, not two, but three pieces of abjectly awful US economic data. So naturally, equities surged higher and government bonds tanked....because of more hopeful noises over the passage of the TARP.
The orders data was wretched on both a headline and core basis. The core shipments figures, which get plugged straight into the GDP calculation, were also awful, prompting at least a couple of immediate Q3 forecast downgrades.
Meanwhile, just when you thought that the housing data had lost its capacity to shock, the new homes sales figures dropped 11.5% month-on-month. The way things are going, they'll soon be able to publish housing data by name, e.g. "This month Fred and Mavis Smithers bought 687 Walnut Lane in Pig's Knuckle, Arkansas." The one housing figure that Macro Man follows is the supply data; as the chart below illustrates, there is no real improvement in sight.
Finally, the jobless claims data were also poor, registering a new cyclical high. The continuing claims data, which provide a smoother series, suggest that we should unsurprisingly expect the unemployment rate to continue rising.
All of this helps to explain why Macro Man remains medium-term bearish on global equities, particularly as both the real-economy and financial-system pennies are about to drop in Europe.
In the near-term however, the Paulson Package is dominating both the headlines and market sentiment. Yesterday, markets rallied on hopes that the package would be passed imminently; today, the collapse of Wamu (is it just a coincidence that this happened during the TARP debate?) and Congressional intransigence have sent equities careening back down. Amongst Macro Man's colleagues, the US Congress is starting to look like a bunch of hapless yokels such as one finds in a Coen Brothers film. In fact, if you listen closely enough, you can hear the market shouting "O Package Where Art Thou?"
Indeed, the whole sordid situation of the past several years resembles the entire Coen Brothers ouevre. The duo's filmography offers a number of insights into the financial crisis. Consider:
Blood Simple (1984): It's bloody simple. The US economy and financial system are completely buggered, and Europe ain't far behind.
Raising Arizona (1987): The aim of the TARP and every other measure taken by Team 1250 is to raise house prices in Arizona, Alabama, and each of the other 48 states.
Miller's Crossing (1990): Somewhere, there must be a back-office clerk named Miller who is involved in trying to cross-net Lehman-facing trades.
Barton Fink (1991): "Fink" is probably among the more innocuous of the four-letter words being used to describe Mr. Fuld and others.
The Hudsucker Proxy (1994): Let's see....a group of businessmen attempt to manipulate their stock price so they can make a killing. The characters are all either deeply cynical or hopelessly simple. Hmmm....Macro Man can't find any possible correlation to the current situation, can you?
Fargo (1996): Unfortunately, Jerry Lundegaard's financial distress may soon be echoed throughout the United States. His snowballing of GMAC (obtaining a loan for a car that didn't exist) is a microcosm of this entire crisis.
The Big Lebowski (1998): A number of erstwhile financial market participants will soon be adopting the lifestyle of The Dude.
O Brother Where Art Thou? (2000): As above.
The Man Who Wasn't There (2001): Two words: Jimmy Cayne.
Intolerable Cruelty (2003): A pretty apt description of how Macro Man's mates at Lehman London were treated by Lehman New York over the past couple of weeks.
The Ladykillers (2004): Scottish Widows' parent company, Lloyds TSB, is down 35% so far this year. The outlook for UK financials remains grim.
No Country For Old Men (2007): As noted a few weeks ago, this is no market for young men.
The Coens' next film is going to be called Burn After Reading. It's hardly a stretch to believe that that is exactly what's being done to the hard evidence of various parties' misdeeds over the past few years.