The Meaning of This Reporting Season

By David Stockman  |  July 16, 2019

Alcoa (NYSE: AA) will kick off another earnings-reporting season tomorrow, this time covering the three months ended June 30.

The major indexes remain in holding patterns up near all-time highs. And the fed funds futures market is still predicting a 100% chance of an interest rate cut in two weeks.

Amid this mini-lull before the numbers start rolling, Sven Henrich, the founder of NorthmanTrader, noted the building irony:

Any more good economic news and a data dependent Fed would actually be back on a tightening path








Sven followed up a little more than an hour later, pointing out some serious absurdity:


Debt to GDP: 105%

Over $22Trillion in debt & flying higher

Deficit $1 trillion

Debt ceiling hit in September

Fed ready to cut rates aiming to prevent a recession.

The focus of the political debate: You are racists vs You are socialists

Of course, the Donald nailed it again and again, accurately, as a “big, fat, ugly bubble.” That’s when he was on the campaign trail in 2015 and 2016.

About as soon as he occupied the Oval Office in 2017, though, he started believing in things like the “official” U-3 unemployment rate.

So, now we have “the greatest economy anywhere in the world.”

Not so fast…

As we recount in the July issue of The Stockman Letter, the reading on the Federal Reserve Bank of Atlanta’s GDP Now for second-quarter economic growth recently slumped to just 1.4%.

And that’s not the half of it.

As Patrick Watson observed in the aftermath of recent trade-data reporting,

Just as an army moves on its stomach, an economy moves on ships, trucks, and planes. They carry the goods whose purchase adds up to growth. Nowadays many goods are digital, delivered electronically. But we still need lots of physical stuff which must travel to the customer. Fewer goods in motion mean lower growth… and that’s exactly what is happening.

The widely regarded Cass Freight Index shows declining year-over-year volume for the last six consecutive months. It was down 6% in May, as the 2018 sugar-high simply vanished.

What happened, of course, is that the Donald’s Trade War fostered an import boom that temporarily created more activity and more jobs.

Here’s Watson again:

This was perfectly predictable. The 2018 transport boom didn’t represent higher demand for imported goods. It was future demand, pulled forward in time. President Trump’s tariff threats gave importers incentive to rush, and they did. That extended the growth a little more. But those effects were temporary, and now they’re running out.

Did you know the U.S. trade deficit soared to a five-month high in May? Talk about “Peak Trump”…

Evolution of Atlanta GDPNow

There’s a school of thought out there, prevalent on Bubblevision, pushing the idea the Federal Reserve is about to pull a rabbit out of its hat, again. They think cutting rates and making money cheaper, easier, again, will work, this time…

And it might, for Wall Street, for a while.

But here’s the thing about this economy…

Access to credit isn’t the problem. Businesses that want to borrow can do so, and on good terms. The problem is they don’t need to borrow unless they’re growing… and they’re not growing.

The Federal Reserve can’t fix that.

And it’s only getting worse.

Sign Up… STAT!

Desperate times call for… “common sense” measures.

And these are desperate times… Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.

We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.

I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”

All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR