Carlin: Wall Street Owns Washington

A Day After Hitting An All-Time High – Two Unofficial “Recession Indicators” Are Flashing For The First Time Since The Recovery Began; Stocks Plunged Sharply Over Bad Economic News; Margin Debt Hitting Levels Only Seen One Other Time In History!


Just Two ‘Recession’ Indicators

“The other times we have seen such a collapse, the economy was either in recession or just coming out of one…”

Retail Sales collapsing…

 

and absent the might of the US deficit, real personal income is also collapsing…

 

Charts: Bloomberg and Gluskin Sheff

 

 

STOCKS TANK AFTER BAD NEWS:

A day after hitting an all-time high, stocks took a beating thanks to some ugly economic news.

First the scoreboard:

Dow: 14,700, -138.8 pts, -0.9%
S&P 500: 1,582, -14.8 pts, -0.9%
NASDAQ: 3,299, -29.6 pts, -0.8%

And now the top stories:

  • The bad news started in Asia.  First, we learned that Korean export growth dropped sharply in April.  Then we learned that Chinese manufacturing decelerated more than expected.
  • In the U.S., the ADP jobs report showed that America’s private companies added just 119k new jobs in April.  This was much less than the 150k expected by economists.  This doesn’t bode well for Friday’s official jobs report.
  • The American manufacturing picture was a bit mixed, but that was largely due to economists’ expectations being so low.  U.S. PMI fell to 52.1 in April from 54.6 last month.  The ISM Manufacturing index fell to 50.7 from 51.3 last month.  Both readings were a bit above expectations.  Also, any reading above 50 signals growth.
  • Construction spending was particularly ugly, unexpectedly falling 1.7% month-over-month in March.
  • ….

 

This indicator is suggesting slower economy and lower stock prices-

Lumber prices over the past 25 years have been a quality leading indicator for the future direction of the economy and the stock market, in both directions.

Back in March, the Power of the Pattern pointed out that Lumber was at the top of a 25-year channel (formed a bearish rising wedge), where 50% declines in Lumber often happen in the past…. which was followed by a slowing economy and lower stock prices.  (see post here)

CLICK ON CHART TO ENLARGE

This trend/pattern has only happened for the past 25 years!!! 

 

Margin debt hitting levels only seen ONE other time in history!

Some times in history, investors feel so confident about the future of stocks, they actually use up all their available cash and then borrow money to invest in the stock market.  Now is one of those times!!!

The chart below was created by Doug Short, see his outstanding work here.

CLICK ON CHART TO ENLARGE

Positive net worth takes place when.….Investors have little money borrowed and plenty of cash in their brokerage accounts.  (2003 & 2009)

Negative net worth takes place when.…Investors have large amounts of money borrowed (on margin) and little cash in there brokerage accounts. (2000, 2007, 2011 & now)

The above chart reflects that only one other time in history has negative net worth been this low, which was the tech bubble back in 2000. The prior two times that negative net worth were this low was 2007 (50% S&P 500 decline) and 2011 (17% S&P 500 decline). …

 

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