Outlook may be worsening...

Just  got this email from Warren Mosler who just got it from J.J. Lando over at Nomura. It corroborates a lot of the fiscal work that Matt Franko has been doing here on this blog.

Some very interesting trends/divergences emerging: 1. Staples/Tech or cyclicals/defensives or low vol or correlations all falling completely off a cliff in spectacular fashion. 2. Forward P/Es in Japan vs in China and Korea massively diverging (fx-driven earnings drain, effectively, but only affects fwd PE this much if street is dramatically dramatically underestimating the fx impact on earnings) 3. You all know, Apple, GE, IBM vs S&P, etc. Meanwhile consider the backdrop: GE was a 'shoot the messenger' situation where their own 'global growth market share' looks fine but they say global leading indicators are poor so the market takes them down 5% and everyone else untouched Weak USD, Strong commodities, China, and MOST IMPORTANTLY A MASSIVE US DEFICIT were fundamental drivers for US Equity performance for a long time. All are now pushing the opposite way. I am seeing ppl forecasting just 400+b for deficit within 2 yrs. Ppl still had 1T for this year a few months ago. It's a STAGGERING, stealth development. It's bad for stocks even if it's from good growth. People thought the Fed was pumping stocks with 'liquidity.' There might have been some weak-USD effects but the FEDERAL BUDGET DEFICIT was the big driver. **Much of the deficit was winding up as corporate earnings the past few years rather than household income** Thus median incomes were flat, overall were up small, overall growth was small, and equity free cash flow and earnings growth has been chugging along at 7,8,9%. Where do you think that came from? Not from the Fed. That was blogoshpere nonsense. IT CAME FROM THE DEFICIT.  The biggest issue of course, is that free cash flow yields still make equities look dramatically cheap to bond-like alternatives... but they also are much more sensitive (over-sensitive) to turning points in things. If only as a punt on reactionary-ism stuff, I don't like them here. Short for a trade. G'LUCK!

Bill McBride — Zelman: "Nirvana for housing"

CR Note: Obviously I'm also very positive on housing. And I'm positive on the overall economy too - and a key reason is, historically, housing is the best leading indicator for the economy. In the Business Insider interview late last year, I said: "I’m not a roaring bull, but looking forward, this is the best shape we’ve been in since ’97".

Calculated Risk
Zelman: "Nirvana for housing"
Bill McBride

Housing and employment turning around, but private debt levels are still elevated historically even after considerable deleveraging. The lackluster economic performance with the historical level of interest rates for an extended period is concerning, especially since asset markets have been appreciating based on low rates rather than fundamentals. So my conclusion is, meh.

Zero Hedge on New York's ultraluxury office vacancy rate change as a leading indicator

Traditionally, when it comes to reading behind the manipulated media's tea leaf rhetoric and timing major inflection points in the economy, the most accurate predictor are financial firms, whose sense of true economic upside (or downside) while never infallible, is still better than most. Yet unlike employment, which is usually a lagging, or at best concurrent indicator, one aspect that has always been a tried and true leading indicator, has been real estate demand, in this case rental contracts. Due to the long-term lock up nature of commercial real estate contracts, firms are far less eager to engage in rental transactions (and bidding wars) when they expect a worsening macroeconomic environment. Which is why news that office vacancy in Manhattan's Plaza district, the area between Sixth Avenue and the East River from 47th to 65th streets, anchored by the landmark Plaza Hotel at Fifth Avenue and Central Park South which is home to some of the nation’s most expensive and prestigious office towers, and where America's largest hedge funds and PE firms have their headquarters, has just risen to 12.3%, or a two year high, is probably the most troubling news for the economy and a real indicator of what to expect of the immediate future.

Zero Hedge
New York's Ultraluxury Office Vacancy Rate Jumps To Two Year High As Financial Firms Brace For Impact
Tyler Durden

Doug Short on ECRI and Conference Board leading indicator divergence

Read it at Business Insider
The Great Leading Indicator Smackdown: ECRI Vs. WLI
Doug Short, Advisor Perspectives
(h/t Credit Writedowns)

OECD pessimistic on global outlook

None of the world's major economies will escape a slowdown, the Organization for Economic Co-operation and Development said on Monday, highlighting increasing signs that growth momentum is dwindling across the board.The Paris-based organization's composite leading indicator (CLI) for its members fell for the seventh straight month to 100.4 in September, down from 100.9 in August and hitting the lowest reading since December 2009.

Readings for individual countries and big developing world economies were broadly lower at levels indicating slowdowns, and were in many cases below their long-term averages.

"Compared to last month's assessment, the CLIs point more strongly to slowdowns in all major economies," the OECD said in a statement.

Read the rest at The Huffington Post (via Reuters)

OECD: All Major Economies Headed For Slowdowns

It's the demand, stupid.