Thursday, October 22, 2009

Morning Update/ Market Thread 10/22

Good Morning,

Equity futures are up very slightly just prior to the open, here’s the DOW and S&P futures showing the plunge yesterday afternoon along with the overnight action:

The dollar is up slightly but not as high as it was overnight, bonds are down, oil is up slightly and gold is down slightly.

The FHFA House Price Index was released this morning, it showed that the U.S. index dropped 3.6% in August… the price drop below peak is not substantiated by Case-Schiller data which shows that the overall drop has been far greater than this report’s 10.7% - this data is based upon “purchase prices of houses backing mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac.” There you go, no wonder they are bankrupt.
U.S. home prices fell 0.3 percent in August on a seasonally adjusted basis, according to the Federal Housing Finance Agency's monthly House Price Index. The previously reported 0.3 percent increase in July was unrevised. On a year-on-year basis, the House Price Index fell 3.6 percent in August, compared to down 4.2 percent in July. The U.S. index is 10.7 percent below its April 2007 peak.

The “leading” indicators (what were they saying prior to the plunge in ’07?) rose 1%...
The index of leading economic indicators jumped 1.0 percent in September for the sixth gain in a row in what the report says is consistent with developing recovery. The largest contributor in September was the rate spread between the federal funds rate, which is very low, and the 10-year Treasury note which actually dipped a little in the month. Though the spread contributed a little less in September than it did in August, it's still signaling economic strength -- that is demand for long-term debt. The second biggest contributor was consumer expectations, which may or may not continue to contribute to strength given weakness in the mid-month Reuters/University of Michigan consumer sentiment report. Improvement in jobless claims, stock prices, and a little less responsiveness for supplier deliveries were also positives. On the negative side was a decrease in the manufacturing workweek and a dip in building permits. The coincident index, which will be used to formally judge when the recovery took hold, was unchanged in September. This index first showed an increase in July then in August, both at 0.1 percent gains.

This indicator is simply dangerous and shows how backwards thinking has become. A rise in demand for debt is a good thing by this indicator, and yet it was too much leverage and debt that led us into the crash and current condition. Yet another example of Economic Mass Psychosis. This “leading” indicator will simply lead the sheeple to the next slaughter.

Weekly initial unemployment claims jumped back to the 531,000 level for the past week, higher than expected. Here’s Econoday:
Initial jobless claims edged higher in the Oct. 17 week, up 11,000 to a higher-than-expected level of 531,000 (prior week revised higher from 514,000). But the four-week average continues to move lower, down for the seventh week in a row to 532,250 for a decrease of about 20,000 from month-ago levels, a decrease that points to improvement for the October employment report.

Continuing claims, down 98,000 in data for the Oct. 10 week to 5.923 million, are roughly 100,000 below month-ago levels. But the indication from this reading is difficult to assess, reflecting an uncertain combination of new hiring together with the expiration of benefits. Those receiving extended benefits fell more than 16,000 to nearly 465,000 while those receiving emergency compensation rose nearly 41,000 to 3.391 million (data for these readings is for the Oct. 3 week).

There was very little initial reaction to today's results though commodities and stocks did tick lower. Next reading on the jobs market will be Tuesday's consumer confidence report from the Conference Board which includes assessments of current conditions in the labor market along with consumer assessments of future conditions.

And here’s a big part of the reason the numbers don’t appear to be getting worse… in fact they are, you now have thousands of people falling off the backside of their benefits they’ve been unemployed for so long.

Losing their lifeline - 7,000 a day

As the Senate debates whether to extend unemployment benefits, more than 200,000 jobless Americans are set to see their checks stop in October.

NEW YORK ( -- Another day, another 7,000 people run out of unemployment benefits.

One month after the House passed a bill extending unemployment benefits, the issue is still being debated in the Senate.

Democratic leaders in the Senate introduced a bill two weeks ago to lengthen benefits in all states by 14 weeks. Those that live in states with unemployment greater than 8.5% would receive an additional six weeks.

Senate Republicans, who twice objected to swift passage of the bill by unanimous consent, want to add several amendments. Their requests include paying for the increased benefits with stimulus funds rather than by extending a longstanding federal unemployment tax through June 2011.

While leaders in both parties are trying to negotiate a compromise, Senate Democrats Wednesday evening took a step to limit the debate on the bill and bring it to the floor as early as the end of next week. If it passes, the Senate legislation must then be reconciled with the House version, which extends benefits by 13 weeks for those living in high-unemployment states.

Meanwhile, the bickering has cost people like Crystal Jordan of Dolton, Ill., their benefits. The single mother of three ran out in late September.

She is one of the 1.3 million people set to lose their benefits before year's end if Congress doesn't act, according to the National Employment Law Project, an advocacy group. In October alone, more than 200,000 people will fall off the rolls.

Lawmakers twice lengthened the time people can receive checks to as much as 79 weeks, depending on the state.

That’s 50,000 a week that are falling off the rolls, as they said, more than 200,000 a month… month after month.

While forever unemployment benefits certainly won’t help America in the long run, what’s more egregious is the trillions stolen from those same people to prop up the banks so that they can pay out their bonuses. Socialism, yes, but the socialism is favoring the bankers as their bailouts have been magnitudes of times greater sums of money than are paid out to the unemployed. It’s sickening, all of it.

Two days ago Karl Denninger suggested that people should boycott the large banks and move their money to smaller local banks and credit unions. Yesterday, Dylan Ratigan said the same. Today I’m also joining their camp in suggesting that a great way to pressure what’s happening is to pressure these large financial institutions by withdrawing your support and business, a boycott. The banks leverage your money, so simply don’t let them. They are using that leverage to buy and influence the political system of the United States.

They are using that money to subvert YOUR Constitution, and trust me on this, your way of life is going to be dramatically altered in the future by their greed and hubris clearly on display in public with statements like, “Pay inequality helps everyone,” made by a Goldman Sachs international advisor, Brian Griffiths. Why it’s their bonus money that will “help to stimulate the economy,” and don’t you know that’s a good thing, but that they need to keep up appearances by donating a goodly portion of YOUR stolen money to charity?! This type of thing needed to stop a long, long time ago. It’s now completely out of control and its taking our country into places that have the potential to get very dark very quickly. Simply refuse to do business with these mobsters.

Okay, we are in the middle of earnings season and what’s happening? Well, Apple is still doing well, we’ve heard some hopeful future looking statements from some of the other tech companies, but in reality sales and revenue figures are down hugely when compared to last year at this time, and last year was already bad at this time. We learned that eBay revenues are down, and we’ve learned that some of the banks are taking advantage of taxpayer stolen funds to manipulate the markets and to reinstate mark-to-fantasy to create ungodly “earnings” on paper, but those earnings are FALSE, they are as real as Alice in Wonderland.

And the media is playing up the positive, that is, after all, where all their ad revenue comes from, isn’t it? So, as CWB points out, when you go to Bloomberg you see a great big overnight headline that says, "China GDP expands 8.9%," and buried in very little print you find earnings reported overnight mostly in Europe:

"Ericcson's profit falls 74%"
"Pernod Ricard sales fall 6.3%"
"Praktiker profit tumbles 65%"
"Logitech profit slumps 71%"
"Japanese exports fall 30.7%"
"Ebay's quarterly earnings fall"

And when you read articles on earnings in the U.S., if you want to know the year over year percentage drops you better have a calculator handy as they are large and the people writing those reports will not even mention those figures, much less calculate them out for presentation. When you do it’s simply ugly. And all you really need to know is right there, “Japanese exports fell 30.7%.”
TOKYO (MarketWatch) -- Japan's exports fell 30.7% in September, compared with a year ago, as shipments to the U.S. fell by 34.1%, data from the Ministry of Finance showed Thursday. The fall in total exports came in worse than the median market forecast for a 29.9% fall and marked a third-straight monthly decline, according to Reuters. Imports slipped by 36.9%.

And what time of year is it? Oh yeah, it’s the time of year that Japan and other nations are usually exporting their goods to the U.S. for the Christmas season. How’s that going to look this year? Evidently terrific, if you work at Goldman whose very existence is only due to the taxpayer robbery they executed last year and is still ongoing.

I know, you WANT to be positive. You are sick and tired of reading the negative, and yet it is negative! Our country IS at an inflection point and we are headed in a very, very dangerous direction. Our economy is NOT recovering in the real world, only in the mark-to-fantasy world. The endless stimulus is NOT making things better, it is the very CAUSE of ALL our economic problems – they are getting worse quickly!

The market has never been so disconnected from reality, so overpriced. This is NOT a new economic miracle anymore than the tech bubble was a new paradigm for the stock market, anymore than the credit bubble of the late ‘20s was that lead to the Great Depression and Black Thursday, now exactly 80 years ago TODAY.

And just as a little reminder of how fast the markets can turn, yesterday in the last hour of trading the markets gave back every nickel of advancements in more than the prior WEEK. One week of gains gone in one hour, that’s how fast it can happen. The disconnected gains are going to be washed away, the markets always, always return to historical norms, the only alternative is that they simply cease to function.

So, was yesterday the turning point? Well, we did produce a new high prior to the plunge and we have yet to break beneath the prior wave, so all the old information and wave counts are still in play. It does, in my mind however, increase the odds that we may have put in a top. That has yet to be seen. It did break the latest wave’s uptrend line, but it has not broken any key levels. A break below about the 1,050 level would pierce the bottom boundary of that textbook rising wedge, that is what I’m watching and waiting for:

Note, too, that we do now have fresh sell signals on the daily stochastics. Support is at 1,061, with the 1,090 pivot now overhead once again. Tony Calero believes the wave count may have ended yesterday, but notes that it can extend. Both he and McHugh note and are watching that bottom trend line of the rising wedge and are using that as a point of demarcation for the beginning of the larger wave C down. That makes the 1,050 level now very important, I doubt it will go down quietly.

Frankly, I think the populace has been treating the bankers and politicians just a little too nicely… it’s time to stop being so gooey, to man up and stop taking the usurious abuse!

Lovin' Spoonful - "You Didn't Have To Be So Nice" 1965: