Tuesday, June 16, 2009

Morning Update/ Market Thread 6/16

Good Morning,

Futures are up a little which is to be expected after yesterday’s 90% down day. Right now the /ES is right around the 922 area, just beneath what was support yesterday and just 10 points above the 912 pivot area:

If you can stand listening to little Timmy Geithner, here he is attempting to explain how our economy is “too unstable, fragile” and thus we need more “reform.” Of course you may not understand anything about anything after listening to him which is obviously his point. What you will learn is that on Wednesday Obama is going to announce a new “Financial Products Safety Commision,” LMAO, that is going to “protect” consumers.

Now that was painful! Talk about an incompetent bureaucrat… But I did love the part about how they were going to make a chart with all the government agencies on it, but there are too many and thus they couldn’t! THAT is exactly the problem. Well that and the fact that the central bankers are using the crisis to launder your money into their pockets as well as to grab power via this supposed “regulatory reform.”

In economic news, the ICSC store sales for last week were weaker than the previous week, falling .6%. Year over year sales were down 1.5%. The Redbook same store sales fell 4.8% in the week, yoy, which follows another very weak reading the week prior (-4.4% yoy). Here’s what Econoday says about it:

For a second week, Redbook is reporting extreme weakness in chain-store sales, weakness that is not explained by year-ago comparison problems with 2008 tax rebates. Redbook reports a giant 4.8 percent year-on-year decline for same-store sales in the June 13 week compared to the year-ago week. Month-to-date, Redbook reports an unrealistic 4.5 percent decline compared to May -- that would signal one of the great retail sales collapses ever. Year-on-year stimulus comparisons also hurt this past May, not just this month: the month-to-month comparison effect of stimulus checks for this May and this June is limited. One factor that may explain the plunge is the removal of Wal-Mart from Redbook's sample, a necessity given Wal-Mart's data blackout. Redbook's text, like last week, is mild, citing a shift in Father's Day for the week's weakness -- another factor that will not affect the May-to-June comparison. In any case, the bottom line, supported by other weekly retail sales reports to a more limited extent, is that June is shaping up to be a big disappointment.

Nice attempt to explain it away, remember that they tried to do the same last week blaming it on Wal-Mart. “One of the greatest retail collapses ever” is exactly correct.

The very important PPI data came out this morning showing less inflation than expected, up .2% in May (month over month) which follows a .3% gain in April. The consensus was for a .7% jump – wrong. However, the big news here is that the year over year data shows an acceleration of DECLINING PRICES which fell 4.7% yoy following a -3.5% reading in April. This means that the RATE of DEFLATION is accelerating, exactly the opposite of what the “consensus of economists” were expecting.

This data along with the bond market collapse leads me to believe that we are getting dangerously close to critical mass for equities and a possible deflationary spiral. Note that Econoday can’t even believe the sales data it’s so bad, yet the PPI confirms that the reinflation people were expecting is not happening anywhere besides equities and a few commodities. But when you look year over year at commodities, they are still way down.

And how about Industral Production? OMG!! Talk about more confirmation of collapse, here’s Econoday:

Manufacturing fell significantly further in May with declines widespread. Industrial production in May dropped 1.1 percent, following a 0.7 percent fall in April. The May decrease was close to the consensus forecast for a 1.0 percent plunge. The manufacturing component dropped 1.0 percent after declining 0.6 percent the prior month. For the other major nonmanufacturing components, utilities in May fell 1.4 percent while mining output decreased 2.1 percent.

Overall, the largest source of weakness was motor vehicles & parts which plunged 7.9 percent after slipping 1.2 percent in April. Excluding motor vehicles, industrial production decreased 0.9 percent after a 0.7 percent fall in April. Manufacturing ex autos fell 0.6 percent in May, matching the prior month's decrease.

Overall capacity utilization in May fell further into new record territory, dropping to 68.3 percent from 69.0 percent in April. The May rate was marginally lower than the market forecast for 68.4 percent and once more set an historical low for this series which goes back to 1967.

On a year-on-year basis, industrial production in May worsened to down 13.4 percent from down 12.7 percent the prior month.

Overall, the industrial production numbers were in line with expectations and should not offset the positive news in housing starts and producer prices. The industrial production report should be a neutral for the markets, leaving intact likely positive effects on equities from the earlier reports. But for broader perspective, manufacturing outside of autos maintained a moderate decline, still basically a neutral outcome relative to expectations. Manufacturing is still in contraction but not at a worsening pace.

What greenshoots are these guys smoking? Not down at a worse pace? Look at the data, it's DOWN 13.4% yoy?!! And that’s ACCELERATING from down 12.7%! Are you kidding me? Industrial Utilization is just plain old in the gutter.

Recession over? Not hardly, more like accelerating deeper into depression.

But oddly, when I read my summary from my broker or look at CNN, the first thing I see is that there’s good news for the economy! You see housing starts SURGED 17.2% after falling 12.9% the month prior! But, shhhhh, wouldn’t want to point out the year over year figure for May which was down ONLY 45.2%!!! The numbers are crazy large, but just remember that big percentage comebacks (in springtime) are not as meaningful following 50%+ yoy losses… Also, it’s important to keep in mind that adding new houses into a depression is just plain STUPID. The very last thing the housing industry needs now is more inventory.

Here’s Econoday’s positive greenshoot spin:

Housing starts in May showed surprising strength-even in the single-family component. Starts rebounded 17.2 percent, following sharp 12.9 percent drop the month before. The May pace of 0.532 million units annualized was down 45.2 percent year-on-year and was above the market projection for 0.500 million units. The rebound in May was led by the multifamily component which posted a 61.7 percent comeback after falling 49.4 percent in April. But the single-family component gained 7.5 percent, following a 3.3 percent rise the month before.

By region, the rebound in starts was led by a monthly 28.6 percent surge in the West. Other regions also saw gains with the South up 16.8 percent, the Midwest rising 11.1 percent, and the Midwest gaining 2.0 percent.

Permits also made a comeback, gaining 4.0 percent in May after slipping 2.5 percent the month before. The May permit pace of 0.518 million units annualized was down 47.0 percent on a year-ago basis.

Markets had expected some rebound in the multifamily component in starts but the increase was notably more than expected. But the really good news was the sizeable rise in the single-family component. This is good news for the green shoots advocates and should provide lift to equities. But before equity markets open in the U.S., we have to get past the industrial production release at 9:15 a.m. ET.

Market Consensus Before Announcement
Housing starts in April fell another 12.8 percent to a pace of 0.458 million units annualized-a new record low for a series going back to 1959. The April pace of 0.458 million units annualized was down 54.2 percent year-on-year. April's decrease was led by the multifamily component which plunged 46.1 percent while single-family starts edged up 2.8 percent. Looking ahead, we may see a rebound in multifamily starts pulling up the headline number. But single-family starts are still constrained by heavy supply of unsold homes-which stood at 10.1 months in April for newly constructed homes.

LMAO, “This is good news for the green shoots advocates and should provide lift to equities.” Jeez, it’s no wonder we are where we are which is most certainly NOT coming out of recession. Do you see the “green shoot” in question on that chart? Would building more houses in this environment be good or bad?

What a bunch of bafoons… our economy is in very serious doodoo. The math of debt simply does not work. Sure, if we had a reasonable amount of debt overhead we would recover from a slow down just fine. But that’s NOT the reality. The debt could have been cleared by allowing market forces to force the weak hands into default EARLY. No, that was not allowed to happen. Thus the DEPRESSION we are IN was CAUSED by the very actions of those who say they are here to help.

Those looking for immediate inflation still don’t realize that inflation is what happened over the past 30 years of falling interest rates. Debt went parabolic during that time period and fueled the greatest credit bubble in the history of mankind. That bubble is now collapsing, just read the last two or three articles I posted yesterday, especially regarding the FLOW OF FUNDS. Equities are in BIG, BIG trouble here. Yes, we may get reinflation IF our currency and governmental system survive the deflation first, but that will come LATER, AFTER the malinvestement has been swept away.

Eagles – Already Gone: