Dave is pissed.
More yellow weeds than green shoots in today’s data-flow
At some point in the not-too-distant future, we believe the markets will begin to second-guess the widespread view that the economy is heading into sustained recovery mode. It may take more than what we saw today, but we continue to hold the view that investors are confusing an ‘improvement’ relative to the post-Lehman shock when the economy was literally falling off a cliff to an actual improvement that would lead us to believe that a renewed upturn is at hand. These are two different events in terms of asset mix, risk assessment, the direction of bond yields and sector allocation.
Small business expansion plans sink
Small business plans to expand slid to a mere 1% in March from what were already microscopic levels in January and February (6% and 3% respectively). Capex plans were also trimmed to their lowest levels since 1975 – to 16% in March from 18% in February. So, without business spending, and without the consumer or housing that at best will flatten once the downturn ends, the only areas left, which can possibly sustain a renewed and sustainable expansion would seem to be exports and government spending.
Green shoots have bypassed the jobs market
For all the talk of ‘green shoots’, they seem to have bypassed the most important market of all, which is the market for jobs. The NFIB job openings index inched lower in March to 10 from 11 in each of the previous two months to stand at its lowest level since November 1991. If memory serves us correctly, a sustained and robust recovery – one that is usually confirmed by a bear market in Treasuries – was at least two years away. And, in the 35-year history of the series, the hiring intentions component, at -10, has never been as low as it is today.
Deflation risks continue to trump inflation risks
NFIB intentions regarding wage increases have also collapsed to zero – again for the very first time. Based on this data, we would have to conclude that even with all the gobs of government intervention, deflation risks continue to trump inflation risks. That the equity market has enjoyed a very sharp and snappy shortcovering rally over the past month has not dissuaded us from this viewpoint.
Overall credit conditions remain exceedingly tight
We are being told that credit conditions are easing and there is actually no doubt that spreads have been tightening, though in many cases they still remain in the stratosphere. While there has been buoyant debt issuance activity, bank lending is actually contracting at a record rate and this is where most small businesses secure their financing. As the charts below illustrate, overall credit conditions remain exceedingly tight.
We will be waiting a good while for inflation to come back
Something tells us that waiting for inflation to come back this cycle, dramatic stimulus notwithstanding (though how much stimulus is there with the record amount of fiscal tightening being undertaken by cash-strapped state and local governments?), will be a mix between Scarlett waiting for Rhett, Lara waiting for Yuri, and Vlad waiting for Godot.
It’ll be a good while.
compliments of the smart people at BofA
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