The Resurrection of Houdini

"My professional life has been a constant record of disillusion, and many things that seem wonderful to most men are the every day commonplaces of my business." - Harry Houdini

Harry Houdini as most of you I am sure are aware, was one of the greatest magicians ever to live.  His feats astonished many but as the quote above shows, he used commonplace ideas and props to achieve the marvelous.  As a great magician one of his greatest mysteries is how he died but it appears that he has managed to resurrect himself in the form of a central banker or an analyst or someone with great power in the financial sector as apparently there will be a miraculous global economic recovery later this year.  Not only this but the Federal Reserve will be so amazed by this recovery that they will press the raise interest rate button and we will gracefully grow into the future with not so much as a ripple to disturb the peace.

This is certainly what the market is pricing but I have to say that there is a mild form of despair lingering in the air particularly after this week once again saw the markets falling back into the trading range that has been intact since the beginning of February.  Since May the market has tried three times to break to new highs but each time it has been beaten back and this week's attempt was feeble to say the least.  It may be that the market is waiting for the Federal Reserve to raise interest rates or for some signs of economic strength however the numbers and data points are showing anything but strength.

While the payroll report today showed continued strength I expect this number to be revised lower and certainly to weaken later in the year particularly when you factor in all layoffs announced during the recent earnings season.  Outside of this small show of strength the economy is slowing down rapidly.  The main reason that analysts point to an interest rate hike in September is due to the supposed labor market strength and a recovery in the second half of the year.  To me neither is happening but everyone else seems to believe that it is mainly due to the smoke and mirror dance being talked up by the central bankers of the world.

Take retail sales growth for example, these are nearing contraction levels and have been falling since mid-2011.  Automobile sales, one of the bright points in the economy, has been growing due to low interest loans and discounts.  This is normally a sign of future weakness as stuffing the channel today results in weak sales later.  In fact if you strip out automobile growth United States GDP year over year growth is zero.  China is slowing at an alarming rate dragging down all the commodity rich countries with it and Europe along with Japan are still a basket cases; BUT, magically in the second half of this year the US will lurch forth with a spate of growth and rescue the world once again.  Not only that but it will shoulder an interest rate hike to boot!

Yes, Houdini has definitely returned but this time when the slight of hand is revealed it may be too late to stop the Federal Reserve pressing the interest rate button and the world economy will already be in a state of shambles.