— aleatory

Lies, Damned Lies & Stats

'everything is ok'

Spotted a strange conviction-based FT article from a week past today. The author believes we’re in the middle of a new bull market (‘stage 2′) and it’s really just a question of when we begin the next move up…

In conclusion he says we shouldn’t panic because of the following 3 ‘key positives':

In recent decades there has never been a US recession, or double dip, when US companies have been throwing off spare cashflow nor when the yield curve is steep (signalling an ongoing recovery). US recessions are driven by the retrenchment of the corporate sector in response to shocks. When companies are cashflow rich, they are resilient to shocks.

We already had the recession. What we are in now is a period of long drawn out malaise in which businesses that have cash use it defensively (before governments find a fiscal method of extracting it to service their own debts) and those whose job it is to supply the credit grease that keeps the system ticking over – decline from doing so to meet similarly austere measures from a government with nothing left to give.

Despite some renewed balance sheet stress, credit conditions globally are easing, especially outside Europe, as banks have recapitalised in recent quarters and as evidence of the turn in the credit cycle continues to emerge

The credit default markets still tell us it is more likely Greece defaults than not. Euro banks non-take up of ECB emergency funds notwithstanding, looking at the corporate market new issues have dropped off dramatically of late. The fact is credit conditions are abnormal and no sane person is saying this will go away overnight.

Growth in emerging markets remains robust – in particular in China; Chinese leading economic indicators, whilst slowing, remain in an uptrend; most importantly Chinese monthly lending growth rates have picked up from the slowdown in the second half of 2009.

One of these leading indicator’s was revised down sharply before yesterday’s opening, highlighting the difficulty not only in interpreting this data but it’s integrity. Is it just me or are revisions to prior data readings becoming increasingly pronounced?

Granted it may well be a sign of uncertain times.

So I’m sceptical of the case for the bulls, if the above is it. But pertinently if what a lot of the optimists are saying is true – that corporates have got rid of their supply overhang and are preparing for a new cycle – where are all the jobs?

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