Friday, August 14, 2009

Morning Update/ Market Thread 8/14

Good Morning,

Equity futures are flat to down this morning:

Bond futures are up slightly and the dollar is down slightly.

The CPI data for July came in flat from june – 0.0%. However, the year over year figure was -2.1%, the largest decline since 1950 and Econoday doesn’t even mention it:
In July, consumer price inflation eased on lower gasoline prices while the core slowed on a rare dip in shelter costs. The headline CPI was flat in July after surging 0.7 percent the month before. The July pace was below the market forecast for a 0.1 percent rise. Helping to soften the July number was a decline in energy costs which dropped 0.4 percent after a 7.4 percent hike the month before. Meanwhile food price inflation fell 0.3 percent. Core CPI inflation slowed to a 0.1 percent uptick in July after rising 0.2 percent in June. The consensus projection was for a 0.2 percent increase in for the core.

Soft inflation is giving the Fed room to keep its balance sheet expansion high. But the weak CPI is indicative of a sluggish economy. Markets were little changed on the news.

Worst decline in 59 years. This CPI data combined with yesterday’s release of export and import prices (historic drop) shows that we are clearly on the edge of a deflationary spiral. Next week’s PPI number may be confirmatory. If Shepherd’s model confirms a deflationary spiral, it will mean very serious consequences for the stock market.

Let’s face it – this rally is WAY overdone and is counter to the economic data that’s present. The psychology is completely lopsided; we now have “90% of economists believing the recession is over.” That is pretty much all you need to know as that is an almost perfect indication that they are wrong. Again, once everyone is convinced that the market is going higher, then they all have their money in and it cannot go higher because there’s no more money left to push it! The other psychology indicators and breadth indicators have been showing this rally is overdone for quite some time.

I cannot get over yesterday’s reported 19.3% fall in export prices. It is time to be very, very careful if you are long, the end of this rally is getting very near. This type of historic disconnect is simply going to lead to a historic decline, it’s coming. Bernanke was under pressure to end QE and now he has done so publicly (I think he’s still doing it behind the scenes). With prices spiraling down, this will surely end the hot money madness that’s been occurring. This will occur despite the intervention that’s occurring, the intervention can only be successful in a low volume environment. Once a deflationary spiral has begun, all efforts to intervene will fail as the intervention will simply be overwhelmed with selling and deleveraging pressure.

Yesterday’s action produced a bunch of clear air hammers, most noticeably in the XLF. Watch the open, if we get beneath the hammers and stay there it would be quite bearish. This rally is going to come unglued soon, the data can be spun forever, but reality cannot.

This week is also a Fibonacci turn week. Yesterday’s close was a new high in the SPX and thus the turn has not occurred yet. I do think that manipulation is the reason we’re seeing so many patterns and turn dates fail recently. It’s not natural, but again, I simply know that those efforts will not only fail in the long run, but they make the problems worse and will only make the subsequent decline that much larger. Cash for Clunkers, give me a break! BTW, did you see that now Bob Toll is asking for a housing Cash for Clunkers? Distortions on top of distortions, and the greedy, THE TRUE ANTI-AMERICANS are there to rob the people every step of the way. They cause price distortions galore, but note that they are NOT creating price inflation despite their best efforts. All they do is put the consumer into a debt and price stranglehold!

Ted Nugent – Stranglehold: