Of all the analysts out there, all the strategists up and down and off Wall Street, the best we’ve ever come across is one you probably haven’t heard of, Joan McCullough, who works out of East Shore Partners. If you are lucky enough to get her research, you already know this. (I’m not trying to do East Shore’s outreach for them; just telling you the plain truth.)
Nobody cuts through the noise like McCullough. One way she’s been illustrating this lately is by noting that the market is essentially keeping two sets of books regarding data points and news flow. In one, every data point is good, the spin is all positive, stocks have nowhere to go but up.
In the other…well, the other is the real world.
The following summary of the past week’s economic news is an absolute must-read, and if the block of text below strikes you as too thick, look, it’s not a James Joyce paragraph. Just read it, and then tell me the talking heads on CNBC have a clue.
From Ms. McCullough:
The stock market is runnin’ on anticipation of FED-induced “Enbubblement.” Totally detached from the fundamentals which have been divided into two parts:
1. The regularly released, incompletely read, heavily spun statistics which are customarily analyzed in hindsight where they are adjudged in accordance with the perceived need to justify current market action. Example: 8:30 a.m. data gets a hiccup and a flat-line. 2:30 p.m., market takes off like a shot, hot dogs gunnin’ for the “stops” for sport only. 3:00 p.m. headline: “Market rallies on robust economic data, Obama’s choice of tie.” Whatever. You get the picture.
2. The big macro issues including but not limited to insolvency, massive deficits and serial monetization.
In the past week, we have seen releases such as retail sales, which were led higher by fuel prices while enhanced by holiday gift-giving, spotlighting a US consumer crusade for cheapest prices whether that be driven by the empowerment of high tech gizmos or raw necessity; Biz Inventories (which got little press but which declined, boding poorly for Q4 GDP, leaving a hole that can only be plugged by increased final demand; keep your fingers crossed); a December NY Empire State Manufacturing Index which, having cratered unexpectedly in November, rebounded likewise unexpectedly this month, although both employment indicators (hours and body count) remained negative, something that was glossed over; November IP which had a similar zig-zag, having bombed in October and rebounded last month and which focused on the production of business equipment, not consumer goods; the NAHB Housing Index which flatlined across present conditions and six months out, with traffic slipping small; Jobless claims which see-saw back and forth week to week, plus or minus a couple ‘o grand but which nevertheless get rave reviews whenever that number declines, begging the question of how we would spin a headline like this: “Initial Jobless Claims, week ended of xx/xx, ZERO” which is as low as it can go…when we’re all finally laid off, eh? New Residential Construction which ex the statistically bogus headline, was abysmal, yet from the sound bites, you’d never, ever know it; and finally, a hot, steamin’ December Philly FED which hit a five-year high, contradicting the earlier-in-the week Biz Inventories, suggesting 3% GDP growth, but which cannot quantify the anticipatory boost to Exports based on the debasement of the US dollar nor can it augur for the damage if Europe, for example, flops. (I’ll give you an example of how this last indicator, the Philly FED can get two-sets-of-fundamental-books spin: Books #1:Europe all together is not even 20% of exports; all our exports combined support less than 10% of overall US growth, so who cares about Europe? Books #2: If Europe really gets rocked, this will no longer be a matter of how many US-made gedunks XYZ company in Boise can sell them. Rather, it will become a question of another widespread, massive, financial dislocation and subsequent, global economic nosedive. Do you copy the difference of the two sets of fundamentals books? Alas, the Micro and the Macro are waging war, eh? You bet.)
Get all that?
The only sign that the U.S. is headed for a sustainable recovery, she says, is simply this, and it’s a point we’ve made ourselves, if we do say so: job creation.
When you start seeing some meaningful, month-after-month job creation, enough to absorb population growth, enough to bring down the unemployment rate, then you can start talking about a sustainable economic recovery. When jobs are being created, when wages are rising, you can start to feel better about the state of the nation. Until then, we’re just being carried along by the powers-that-be.