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SP500 and US Unfilled Orders : Liquidity vs Economy The Hidden Risk - The Perfect Storm ?

( Pragmatic Capitalism, FRED, Global Economic Intersect )

Since the beginning of the financial crisis, the Federal Reserve has been obliged to inject tons of liquidity into the system. Financial assets like the SP500 had a very good performance indeed. But at some point a little bit disconnect to the real economy.



​​We will compare the SP500 to the US durable Goods Orders. And more specifically, the value of manufacturers Unfilled Orders for Capital Goods ( Nondefense capital goods excluding aircraft ). So on the first graph below, you can see the the value of manufacturers Unfilled Orders for Capital Goods on a year-over-year basis from 1997 till now. And on the other graph, you can see the SP500 on a year-over-year basis.

What it is very interesting to note, is that each time the value of manufacturers Unfilled Orders for Capital Goods on a year-over-year basis decline and crossed 0%, the market ( SP500 ), on the past two recessions has been able to anticipate and make the correction earlier in time... But not this time... Liquidity driven bull market... Correction ahead for the SP500 ?



​​So, when you begin to see one diverge from the other you have to start asking yourself whether the market is pricing in an overly optimistic outcome or if the economy has yet to catch up with what the market is seeing. Of course, in a market that is highly sensitive to the jawboning of central bankers, the conclusion might be more obvious than it appears.

And the other scary part, is that Value of Manufacturers Total Inventories for Durable Goods Industries has been exploding...

​( See graph below ).