On days when lots of financial numbers are released, the normal pattern is
for some to point one way and some another, giving everyone a little of what
they want and overall presenting a reassuringly muddled picture of the economy.
Not today. A wave of economic stats flowed out of Washington, almost all of
them terrible, while corporate news was, in some high-profile cases, shocking.
Let's go to the highlight reel:
Retail
sales fell again in December, bringing the 2015 increase to just 2.1%
versus an average of 5.1% from 2010 through 2014. This kind of deceleration
is out of character for year six of a gathering recovery, but completely
consistent with a descent into recession.
The New York Fed's Empire
State Manufacturing Survey index plunged to -19.37 in January from -6.21
in December. This is a recession -- deep recession -- level contraction.
Not a single bright spot in the entire report.
U.S.
industrial production fell for the third straight month in December,
and the previous month was revised down sharply. Factories are already in
a recession that appears to be deepening.
On the company-specific front:
UK resource giant BHP
Billiton wrote down the value of its US shale assets by $7.2 billion
-- two-thirds of its total investment -- in response to plunging oil prices.
Now everyone is wondering who's next, and the list of likely candidates spans
the entire commodities complex.
Chip maker Intel reported
okay earnings but really disappointing margins and outlook. Its stock is down
9% as this is written mid-morning.
Walmart is
closing nearly 300 stores and laying off most of the related 16,000 workers.
It also cut its forward guidance aggressively.
There's more, much of it related to plunging oil prices and their impact on
developing world economies. For countries that grew temporarily rich on China's
infrastructure build-out, the end of that ill-fated program has produced something
more like a depression than a garden-variety slowdown.
Now the panic is spreading. China stocks entered a bear market last night,
oil is down huge, and as this is written (1 PM EST on Friday) the Dow is off
450 points. A tidal wave of terrified capital is pouring into Treasury bonds,
and a smaller but still significant amount is moving to precious metals. Everything
else is down varying shades of big.
Readers of a certain age will notice that this feels a lot like late 2007,
when pervasive optimism hit a brick wall made up of subprime mortgages and
credit default swaps. Everyone then headed for exits that were far too small
to accommodate all the semi-worthless paper.
But this time around there are some big differences:
-
In the 2000s the world's central banks weren't prepared for the scale
of the carnage and had to improvise. Today they're already intervening
in virtually every major market and so presumably have plans drawn up for
the mother of all manipulations should 2008 come calling again. So we should
expect some bold, experimental (let's just say crazy) monetary policies
from major governments in the year ahead.
-
The big banks are now seriously out of favor, so when their derivatives
books blow up they might not be able to blackmail a sitting president with
threats of martial law should Goldman and JP Morgan fail. Today that's
an experiment that a lot of people would actually like to run, on the assumption
that because the same number of factories, farms and hospitals would exist
the day after such an event, real wealth would hardly change at all and
mega-banks would be proven irrelevant.
-
The world is vastly more indebted today, the carnage in commodities is
global rather than sector-specific as with mortgages, and formerly rock-solid
political systems like the eurozone and China are now unstable -- to put
it mildly. A new financial crisis would energize fringe (i.e., anti-status
quo) parties everywhere, vastly complicating the official response. In
the US, another bust could easily result in a 2017 presidential race between
Bernie Sanders and Donald Trump, neither of whom would favor bailing out
the big banks.
And then of course there's the Middle East, which is now in end-to-end civil
war.
Add it all up and, the picture is already grim, with lots more bad news in
the pipeline. So it's not surprising that traders are nervous about going into
the weekend with long positions in retail, tech, banks, commodities, or anything,
really.
