Tuesday, August 11, 2009

Morning Update/ Market Thread 8/11

Good Morning,

Futures are down this morning, here’s the overnight action:

The dollar is flat, bonds are up.

Goldman’s ICSC store sales were unchanged on a week to week basis and they claim they are UP .4% yoy after being down .7% last week. WORTHLESS DATA. I am going to stop reporting this data as it’s just so disconnected from reality as to be laughable. Sales up year over year? Nice try.

Now, for some more out-of-whack and not very believable data, Productivity and Labor Costs were released this morning for the second quarter of ’09. I believe this data is VERY skewed due to the sharp decline in workers and that has produced some unbelievable numbers… like Productivity that rose 6.4% in the quarter. Believable? Well, it’s possible that fewer workers were able to get previously produced or partially produced inventory through the pipeline, but it doesn’t sound sustainable to me. That or the numbers are being manipulated so much in terms of output/ PRODUCTION (THAT’S GDP), that this number was just skewed. Again, this number does NOT pass Nate’s common sense test.

Meanwhile they report that Labor Costs fell by a whopping 5.8% in Q2. Now that’s more believable and would line up with layoffs. This, once again, is data that does not paint a picture of inflation, it is deflation when labor costs fall or crash – and 5.8%, if close to reality at all, is very close to the type of number you would see during a deflationary spiral.

Here’s Econoday’s take with chart:
Productivity and labor costs in the second quarter showed sharp improvement in the second quarter-suggesting a favorable profits picture for many companies despite the recession. Second quarter productivity posted a sharp gain of 6.4 percent annualized, following a revised 0.3 percent rise in the first quarter. The second quarter boost came in above the consensus forecast for a 5.5 percent increase. Although layoffs are hurting the consumer sector, businesses are seeing their costs improve. Unit labor costs fell an annualized 5.8 percent after dropping a revised 2.7 percent in the first quarter. The market had expected a 2.8 percent decline for the latest quarter.

The jump in productivity and drop in unit labor costs were due to hours worked falling much faster than output. Hours worked plunged an annualized 7.6 percent while output edged down 1.7 percent.

Year-on-year, productivity rose 1.8 percent in the second quarter, following a 1.0 percent gain the previous quarter. Year-ago unit labor costs slipped to down 0.6 percent from up 0.5 percent for the first quarter.

It is typical during recession that productivity rise and unit labor costs dip as companies cut their labor force. And if the mix is right, profits go up-as is likely the case for many corporations. For others, losses simply are not as severe. But equities should like today's numbers as productivity was stronger than expected while costs declined more than forecast.

Bull. These numbers are frightening. They are NOT healthy and will NOT lead to higher profits overall.

The tax and spend, create money from thin air, never ending stimulus, thank god for government, crowd does not get what is happening. The bubbles ARE THEIR DOING, as are the subsequent crashes, as are the other events that tend to follow times of economic upheaval. They don’t understand that if you outsource all your productivity, then you will all be left to perform services on one another and there will be no productivity and no capital generation here at home, it will all happen overseas.

So, this is all a part of the great leveling of the playing field across the world. American's wages and their lifestyles are going to fall while those of the people in China, India, Brazil, and other overseas locations are going to rise. This is a good thing if you are a Central Banker – more credit to be created around the world. Of course if you are an auto or other real worker in the United Stasis, well, welcome to the unemployment line. Remember old Ross Perot’s famous and prophetic line?

“That sucking sound you’ll hear is American jobs going overseas…”

John Mellencamp - Rain On The Scarecrow:

Yesterday’s decline was weak and on low volume. The 30 minute stochastic is now oversold, the 10 is overbought and the 60 is close to oversold. McHugh is expecting one more wave up prior to rolling over for a top of 1 up of c up of B up. I’m neutral and just watching, waiting for a queue.

The 1,000 area of the SPX has been providing support. A break back beneath would be bearish if prices got beneath and stayed there, bullish if they stay above in the short term. Everywhere I read people are now so conditioned to this buy the dips manipulated fluff money rally that I have to believe a lasting top is getting near. We’ll see.

Have a good day,