After January's hopeful spike to 6 month highs, Chicago Fed's National Activity Index plunged back into contraction (at -0.29) near 2 year lows.
A shockingly large 58 of the 85 individual indiators within the index made negative contributions to the overall index which printed notably below the lowest economist's expectations.
The news is out.. and it's disappointing..
One month ago, as we pounded the table on the biggest threat to the fundamental case for oil, namely that even a modest rebound in oil prices could unleash another round of production by the "marginal", US shale oil producers, we warned that a rebound in the price of oil as modest as $40 per barrel, could be sufficient to get drillers to resume production.
The rally of the last month has many scratching their heads.
That is, until you realize:
1) Most of it was driven by “short-covering.”
2) The primary buyers of stocks today are corporations buying back their stock to juice EPS, not actual investors.
3) Actual investors have been selling the farm.
Central Banking manipulation only works as long as a reasonable number of investors continue to “drink the Kool Aid.”
Unfortunately we are now well past that point.
Last June, China’s stock market miracle ended in tears.
The SHCOMP’s inexorable, parabolic ascent was to a large degree facilitated by an explosion of margin debt, the likes of which could not be found in any other major market across the globe. For instance, by the end of June, the outstanding balance of margin transactions as a percentage of the SHCOMP’s free float market cap was nearly 14% compared to just 5.5% for the S&P and less than 1% for the TOPIX.