Non-Farm Friday – Fed Spins a Weak Economy


No, not the fact that the Republicans in Congress (not a single Democrat voted for this) yanked away your health care yesterday (while keeping Obamcare for themselves) and not the fact that your parents will soon be moving in for you as Republicans also rescinded small-business retirement plans so they could give their money to richer people too.  No the surprise I'm talking about is the US Macro Surprise Index which hasn't fallen this hard and fast since 2008 – another fun thing to ignore in market utopia

The Citi U.S. Economic Surprise Index measures actual data readings are how they compare with expectations.  A reading above zero means that the data on balance are coming in above expectations, while a negative reading indicates an economy that is underperforming and, suddenly, we're at -20, down 80 points in a month!  That decline began with last month's horrific Non-Farm Payroll reading of just 98,000 but on Wednesday, the Fed indicated in their statement that they didn't think it was a trend and the Atlanta Fed, in their GDP Now Forecast, are pegging Q2 growth (and we're halfway through it) at 4%.

But the Citi index says they are idiots – or Economorons, as I like to call them.  The indications we've been getting in April have, time after time after time, indicated growth is slowing (and last Q we only grew 0.8%), not speeding up and Corporate Profits, though strong, are being goosed by a weaker Dollar, weak comps and earnings that are simply divided by less shares due to buybacks.

There is A LOT of financial engineering in earnings reports these days.  The gap between GAAP and Non-GAAP earnings has never been higher, with Q3 GAAP earnings coming in almost 25% lower than the Non-GAAP earnings they use to come up with the "official" S&P earnings.  We're not even in the ballpark of reality here – yet traders (I won't call them investors for they know not what they are doing) keep BUYBUYBUYing – no matter how ridiculous the valuations get.  

As we've discussed in the past, to some extent – money simply has nowhere else to go.  You
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