Tuesday, September 8, 2009

Morning Update/ Market Thread 9/8

Good Morning,

I hope everyone enjoyed their weekend. Equity futures are up strongly, here are the DOW and S&P futures:

You can see that there is a strong up channel going and has been for the past three days.

The dollar is down strongly and landed right on the bottom of its descending wedge. Watch this point, should the dollar break down out of that normally bullish formation, it could break down quite hard. Gold rose to a new high touching $1,009 before pulling back to about $1,006. Below is a chart showing dollar futures on the left (daily) and gold on the right (5 minute):

Bonds are up slightly. I want to mention that TLT may be carving out a large head & shoulders pattern. If that’s true, the economy is going to see higher interest rates in the months ahead and that would not be a good thing for a debt riddled society. The right shoulder may have some room to go higher, but that’s what the formation looks like right now. Of course it’s unconfirmed until the neckline breaks down, but keep an eye on it while I’m gone. Big debt issuance this week again by the Treasury – I’m sure that’s not helping the dollar.

Light week for economic news, you’ll get consumer credit numbers this afternoon, Consumer Sentiment on Friday, International Trade on Thursday, but the rest is the generic weekly data.

The VIX has issued another market buy signal, it has done that twice now in the past month when it jumped above the upper Bollinger and then fell back beneath. I would not ignore that signal, but I’d still be a very cautious playing in there either way:

McHugh has a turn date on 9/9/09 which is tomorrow. Then he has a large Fibonacci cluster that occurs the last week in September. He still believes we are in wave 3 up of c up of B up and that it has a ways to go. His count is becoming a little more obvious with the latest decline, so I don’t discount it. Perhaps the rise will be fueled by debt and a declining dollar, that will make it no rise in REAL terms, but will set up some pretty nasty stuff later on as the real economy and real people continue to face pressure.

Speaking of real people, this weekend we went over to visit our old neighbors on the golf course where everyone used to believe they lived in million plus dollar homes. While we were there the people who bought our old house from us invited us over… they are very nice people and have done well in life, they are now in their seventies. He used to own a wholesale electrical supply company and then went into the restaurant/bar business. He still owns two fairly successful restaurants in Tacoma, but they turned into big time money losers for them in the past three months. These people are big spenders with a big family. They bought our home from us (the only home to sell in the community over a year and a half, and now there’s been one other), but they kept their old home only a mile away, they own a lakefront home in eastern Washington, they own another home in Cabo, Mexico, a large boat (can’t sell – been on the market forever), and an assortment of expensive cars. They haven’t been on their boat in 4 years and have not been in their Mexico house in more than three. They are suddenly very tight with their money and state that they saw a recession coming, but nothing like this. Their one bar is losing on the order of $10k per month!

A long time ago I made a bet with some other old neighbors that homes would not bottom in that development until they had sales in the $600k range - getting close to that already. There’s a home across the street that’s in foreclosure and the yard is a mess. Get this… before moving out the foreclosed owners were selling trees out of their yard and light fixtures out of the house until my next door neighbor stopped them!

Out of 100 homes, there are 5 that were just finished or close to being finished, huge & beautiful monsters, that are all in foreclosure. What a mess, the majority of homeowners are underwater except those that had a lot of equity like the neighbors we visited who actually have their home paid for. Being out of debt is a good thing, those levered up with a bunch of “things” are beginning to feel the pain. I look at those homes now and all I see is hours and hours of upkeep, more than a thousand dollars a month in property taxes, and huge utility bills. Have fun with that!

The markets are very dangerous at these altitudes. You have idiots claiming that stocks are cheap based on forward earnings. They forget that the consumer is dead, they are still debt saturated and they do not have home equity to tap. The only reason the market is going up is because of freshly minted fiat and Goldman games… that’s it. It’s not real and it won’t last. But since our government is hell bent on destroying itself, gold is the current beneficiary. Bonds scare me. Stocks scare me.

As I read story after story on the economy, it’s all sounding like a broken record to me. Willful ignorance of the underlying condition. A banking system that is riddled with way too much leverage and derivates, living only on mark-to-fantasy, penalties on the consumer, and government handouts (again courtesy of the consumer). Those who don’t see it, or who choose to ignore it, are going to get burned again.

Roy Orbison – Crying: