There may be something to December after all. It was credit markets that shifted downward (bearish yield curves and credit spreads) dramatically around the end of November and the first few days of December. Given the persistence of large players moving credit and funding markets, this may not be all that hard to fathom with the close proximity of credit desks next to, say, lending desks or high yield trading. If high yield issuance is any good proxy about marginal conditions, the erosion there is as much about an economic trend as it is some semblance of restoration of fundamental sanity.
It is too early to define the shape of the economy right at this moment, though needless to say that there is far more uncertainty than there was even a few months ago – just before the Christmas letdown.
The Dow Jones Industrial Average plunged more than 350 points on Tuesday after weaker-than-expected data on durable-goods orders and disappointing earnings reports from bellwethers, such as Microsoft Corp. and Caterpillar Inc. sparked fears that economic growth is slowing.
Durable-goods orders fell 3.4% in December, raising questions about whether businesses are really ready to ramp up investment in 2015.
This will all be very ‘unexpected’ to economists who have spent the better part of 2014 vehemently assured about that growth trend. In the case of durable goods, there was certainly a pickup in mid-year, but any extrapolation from that was always misplaced since it was the same mini-cycle that plagued 2013. What looked like growth to those who pay no attention to context was instead artificial, and thus unsustainable, in every way.
This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ January 27, 2015.
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