Friday, May 15, 2009

Morning Update/ Market Thread 5/15

Good Morning,

Nothing but greenshoots this morning, comrades. Here is a picture of the overnight action with the futures down but recovering a little:

Yesterday we learned that Chrysler is axing 789 dealerships, 15 of them right here in Washington State. AND, we learned that GM is closing a whopping 2,600 dealers nationwide – is all. What was that Obama said? Nuts.

Meanwhile WE, comrades, agreed to bailout 6 more – SIX MORE – insurance firms, each one another AIG!

Considering a short sale, comrade? No problem, the treasury will now give you some of my money too! Congratulations, and I do encourage you to take full advantage! Here’s a snipet of the details from CNN:
Treasury Dept. is giving 'cash-for-keys'

…If that is unsuccessful, the final step is a "deed in lieu of foreclosure," when borrowers voluntarily forfeit the deed and the debt may be erased.

Under the new initiatives, for short sales and deeds in lieu, borrowers will get up to $1,500 to assist with relocation expenses. Treasury will also pay the servicers $1,000 to complete a short sale or deed in lieu.

A deed in lieu can be the least painful way of ending a mortgage default nightmare, according to Pamela Simmons, a real estate attorney in California.

"Borrowers often prefer to end it quickly and cleanly," she said. "They just want to get it over with." And it's better than just walking away from a mortgage, a situation where the debt still looms.

A deed in lieu might also be better for the banks. Banks acquire the properties back from delinquent borrowers faster and more easily, saving them legal, financial and other costs associated with going through the entire foreclosure process.

Not every deed in lieu involves "cash for keys," but motivated lenders will often pay borrowers something, typically about $1,000, to vacate by a fixed date and to not vandalize the homes or strip it of fixtures.

So, there’s a lot of economic data out this morning, let’s start with manufacturing in the New York area, which improved from -14.7 to “only” a -4.7 in May. What improvement! It is no longer in freefall, a real honest greenshoot of contraction! But wait… Econoday adds this:
Now the bad news. New orders, the life blood of course of any business, show a deepening rate of contraction, at -9.0 vs. -3.9. The employment index continues to show severe rates of month-to-month losses with improvement marginal, at -23.9 vs. -28.0. Prices received offers especially bad news, at -27.3 vs. -18.0 suggesting that the improvement in shipments will not be fully reflected on firms' top line.

Dang, I knew someone was smoking and toking too many greenshoots.

And Industrial production fell another .5% in April after falling 1.5% in March. An improvement or further contraction? Sorry greenshoot tokers, it is no greenshoot:
Econoday: Industrial production continued its downward spiral in March, falling 1.5 percent, matching the decline the previous month. But the manufacturing component was even more negative, falling 1.7 percent, following a 0.6 percent decrease the month before. Declines were broad-based with the exception of motor vehicles, which advanced slightly. However, there are signs that the contraction in manufacturing may be slowing. The ISM manufacturing index for April rose to 40.1 from 36.3 in March. The April rate was still in negative territory. Markets likely need to start paying attention to manufacturing excluding autos as Chrysler and GM have both been shuttering plants. According to the employment report for April, aggregate production hours in manufacturing dropped 0.9 percent, indicating a likely sharp drop in manufacturing output for the month. Capacity utilization hit a record low of 69.3 in March and likely will slip even further in April.

Okay, now let’s get to the important, if not highly manipulated, data, the CPI. Here we find that on an annual basis, prices are falling at the fastest pace in the past 54 years…
Consumer price drop is biggest since '55

Government says 0.7% annual decline is the largest in nearly 54 years. Monthly prices unchanged.

NEW YORK ( -- A key index of prices paid by consumers fell at the sharpest rate since August 1955 due to historically low energy prices, the government said Friday.

The Labor Department said the Consumer Price Index declined 0.7% on an annual basis in April, only the second year-over-year decline in nearly 54 years following March's 0.4% drop.

On a monthly basis, consumer prices were unchanged, in line with the consensus estimate of economists surveyed by

But prices excluding food and energy, the so-called core CPI, rose 0.3% in April, after a 0.2% rise the month before. Economists were expecting a 0.2% gain.

This is an important piece of information as shows that we are indeed encountering a declining price environment. I’ll have more on this later, meanwhile we need to look at the TIC data.

March TIC Data

The bottom line is that NET TIC flows were reported as being positive by $23 billion which is a much better REPORT than for February. Although I trust government reports about as far as I can throw them, it is possible that February was positive as when I look at the treasury and bond markets for that month they were flat. They are also flat in the month of March, so we may get one more month of in the ballpark, but then the month of April should be net negative in a big way. Too bad this data is delayed by 3 months!

So, on a technical basis, we are still inside the latest descending channel. This channel is not very wide and thus it could be corrective only unless it widens out:

People are still living in a greenshoot world, they are not thinking clearly. Just look at all the dealerships that are closing and what that means for unemployment, and for tax revenue. A disaster is occurring and it was inevitable. I believe you’ll see housing data get worse and then all these pressures will begin to turn up in future data which will show us back in a near freefall again.

I’m late getting this posted so will end here – more technicals inside the daily thread, appreciate the technical contributions…


PS - hey, it's Friday, again you are all invited for a BBQ, we could all be heros there and will have a great time! BBQ invite…

David Bowie – Heroes: