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From Lombard Street Research:

All news is good news - US markets and some commentators seem once again to have moved to a state of denial. All news is treated as goods news. The news is good? The economy is booming. The news is bad? The Fed will cut interest rates, the economy will boom. How else to explain the continued rise of US stock markets to new all-time highs?

But employment is weak - Yet it is difficult to see how the news really could be so good. As Charles Dumas pointed out in a Daily Note following the release of last month’s non-farm payroll data, current jobs growth is adequate for 0-1% output growth, but not more than that. The reasonably good data from investment banks was marred by covering the three months to August, but not yet September, when the scope for losses was greater.

As is housing - And there is still the housing market. As the chart below shows, the overhang of new homes for sale is back above 8 months; that of existing homes is 10 months and increases every time there is a new foreclosure. The last time overhangs were at these levels (in 1990/91) it took between three and four years to get the overhang back to the 4-5 months range which is commensurate with a buoyant housing market.

So the glitter is clearly not golden - In order for the US economy to grow at trend, domestic spending currently needs to grow by 105% of GDP or more. If neither employment nor housing provide the support for such growth, where will it then come from? Denial now will simply exacerbate and extend the problem.