The ECB having announced and then implemented at least some kind of QE plan, the entire economist community has adjusted their economic projections upward in uniform, flocking fashion. They haven’t had to make much of an adjustment because they never downgraded economic expectations much to begin with. That is why almost every news story about the economy (and not just in Europe) includes some grammatical derivation of “unexpected” usually right in the opening paragraph.

German factory orders unexpectedly fell for a second month in February in a sign Europe’s largest economy is still prone to risks.

If that isn’t representative from Bloomberg, here’s another opening from Bloomberg also discussing German factory orders:

German factory orders unexpectedly declined in January as foreign demand for investment goods such as machinery slumped.

Those two articles are not, in fact, successive months as the first quote was the current view from today while the second was from March 2012 in relation to estimates for January of that year. That 2012 version included the obligatory (apparently) and unshakably cheerful outlook from the credentialed economist.

“It’s an ugly number but it was caused by a sharp drop in big-ticket items so it masks the overall robustness of the German economy,” said Alexander Koch, an economist at UniCredit Group in Munich. “The confidence indicators signal a gradual recovery.”

It is highly significant, apparently, these “confidence numbers” as sure enough that was the go-to assessment of why hard data should be ignored in favor of something much less scary. That hasn’t changed despite all that has taken place in those three years. From the April 2015 story:

“There is absolutely no need to be worried,” said Andreas Rees, chief German economist at UniCredit Bank AG in Frankfurt. “The upward trend in business sentiment is intact, thereby heralding better hard economic data in the next few months.”

Obviously, there is a template when writing these kinds of stories that run counter to the preferred recovery narrative, though I do often wonder exactly what these economists are looking at when making these assessments. Clearly, the hold of sentiment is that it confirms the monetary bias, as the commonality between these two months is not just “unexpectedly” weak factory data. In early 2012, the ECB had just unleashed LTRO’s of immense size, and in early 2015 there is of course the European brand of QE. To which such upswings in sentiment led, at least on the first occasion, nowhere good to the puzzling bewilderment of all orthodoxy.

ABOOK April 2015 Germany Factory Orders Long

Even as sentiment was positive in early 2012, purportedly, it walked anyone following the credentialed forecast square into outright recession. As it relates to the current trends, I’m not sure how there would be any ambiguity as to what direction at least factory orders are taking.

ABOOK April 2015 Germany Factory Orders Shorter

This is not some trivial aspect of Germany’s economic portfolio, as factory orders represent both the domestic end of an investment/capex economy and the assumed beneficial impact of the euro on export activity. Since June 2014, factory orders have clearly slid in opposition to everything economists expected of the weaker euro – to the point that four out of the past six months have been negative. The timing of this is not unexpected, as it is the flipside to the euro’s decline that seems to be overriding everything.

Coincident to this drop in factory orders, regardless of sentiment and QE, is the “dollar” yet once more. It is apparently quite difficult for anyone in a position of commenting on the global economy to see the “dollar” as it actually is and what that says about global economic health. The “falling euro” as an export boost is really a symptom of a much larger problem that, even if a weaker euro did help “cheapen” German goods, means to throw away any hopes for increasing “demand.” The “dollar” is the fundamental, economic expression of global finance – and clearly finance isn’t so sentimental about sentiment alone.

We are about to come face to face with that reality here in the US in the upcoming weeks. It is earnings season and the word “dollar”, even if not used in its proper context, will be paramount. Already, according to Reuters, of the 105 S&P 500 companies that issued earnings warnings (the highest proportion of warnings since 2009) 69 cited the “strong dollar.” As such, this is expected to be the worst quarter in some time and even the first annual decline in EPS since the Great Recession itself.

First-quarter S&P 500 earnings are projected to have declined by 2.8 percent from a year ago, which would make the quarter the worst for results since the third quarter of 2009, not long after the United States emerged from the Great Recession, according to Thomson Reuters data.

From that quarterly view, we get the full-year “earnings recession” according to Bank of America Merrill Lynch (via Yahoo!):

Dan Suzuki and the equity strategy team at Bank of America Merrill Lynch have trimmed their earnings per share expectations for the S&P 500 to $117.50 from $119.50, implying the first year of negative earnings-per-share growth since 2009.

Since 1974, there have only been three calendar “earnings recessions” that did not coincide with economic recessions; at least not in the same year. The first was the near-recession in 1986. The second and third are eminently related to what I have described as elongated cycles: 1998 and the Asian flu precursor to the 2001 dot-com recession and then the great and likely as-yet unresolved 2012 slowdown.

The difference now is the “dollar” and global finance are no longer enthralled by monetary promises in either direction. If there is a difference between the earnings recession in 2012 and that which may result in 2015 it is that credit and funding are already highly bearish, and thus 2015 is really on a separate, cynical level from even 2012. Reality may finally intrude at least, though it will take longer to penetrate the thick, viscous blanket of sentiment that is, apparently, everywhere still:

But investor sentiment has been boosted by optimism that the Federal Reserve will continue to delay its first interest rate hike in nearly a decade. The S&P 500 lost 1.7 percent in March but remains up 0.8 percent for the year so far.

 

“The market is holding up remarkably well… all in the face of earnings concerns and the fact that economic news is a little worse than expected,” said Robert Pavlik, chief market strategist at Boston Private Wealth in New York. “It speaks to people’s expectations that the Federal Reserve is going to remain on hold at least until September, maybe a little longer.”

I don’t think sentiment means what all these people think it means; or at least not what it used to mean when the idea of sentiment was first put together under organized approaches. Given these examples the word “sentiment” might better be supplanted by “rationalization.”

“The rationalization indicators suggest a gradual recovery.” “The upward trend in business rationalization is intact.” “Investor rationalization has been boosted by optimism that the Fed will continue to delay confirmation of an actual and sustainable recovery and economy.” What a world this modern, pliable wholesale “dollar.”