At 2pm we get the Fed’s latest Beige book, an anecdotal view of the economy gathered through roughly the end of August. Most of the good data we’ve been "celebrating" in the markets has been June data with a lot of disappointments in July and next week we get our first look at August statistics where we’ll see just how well Q3 is really going but yesterday’s data on Consumer Credit, which dropped $21.6Bn last month (a 10% annual rate) turned us bearish into yesterday’s close.
Not that we were all that bullish anyway but this was a last straw for us as the Dow was jammed up 50 points in the afternoon on very little volume, right up until the last 5 minutes when 45M shares were exchanged (1/4 of the day’s volume) as Mr. Stick ran headlong into a seller that took full advantage of an opportunity to get out near 9,500. Consumer credit is actually worse than it seems as the drops are accelerating RAPIDLY. The drops began in March at 0.5% but April was down 1.6%, May -2.2%, June – 3.1% and July -4.2%. Compare that to last July, when consumer credit was UP 4.9% and you can see how far and how fast we are falling. And that figure, by the way was BOOSTED significantly by July’s "Cash for Clunkers" program. Were were expert economists on this issue? They expected a $4Bn drop in July, a miss of 440% by 31 economists polled by Bloomberg – the same ones who expect a turnaround for the economy.
Out of 31 Economists who are paid to watch numbers like this for a living, just one had predicted a $12Bn decline with the rest missing by miles. Perhaps we can forgive them as the Fed missed too with their original report listing Consumer Credit as declining by "just" $10.3Bn in June. That number was revised up 50%, to a loss of $15.5Bn yesterday.
Ooops…. As we noted in last week’s Fed minutes examination, the actual data is MUCH worse than the Fed’s outlook would have a rational person believing. So the Beige book will be interesting this afternoon and we’re not expecting a good report. The Fed gets a bad report tomorrow too, with the release of Ron Paul’s new book "End the Fed." This is going to be fun and a few weeks later we get…