Friday, October 30, 2009

Morning Update/ Market Thread 10/30

Good Morning,

Equity futures are down this morning following yesterday’s fun with Goldman’s market manipulations – we’re definitely throwing a party the day they fail – and they will, I just wish we could get them thrown in jail where they belong. What, a guy can dream can’t he?

The dollar and bonds are both considerably higher overnight, oil and gold are lower. The move in the dollar is larger than the move in equities, so I would expect that the two need to get into synch at sometime today.

Yesterday’s phony baloney GDP numbers painted a false picture of health, pure fantasy. The Fed updated their charts with the latest data, and here is the chart showing the tremendous gain in GDP as presented in year over year percentage terms… look carefully, closer, closer, THERE, right at the end of that historic plunge, see that green shoot of hope that resulted in an 89% up day on dramatically lower volume? That’s it, buy into the B.S. and you will simply go broke as the banksters play illegal games and laugh themselves silly:

And this morning consumer spending showed the vacuum created when government induced misallocation ends:

The consumer sector softened in September in both income and spending. Personal income in September was unchanged, following a revised 0.1 percent gain in August. The September number matched the market forecast for no change. The wages and salaries component, however, declined 0.2 percent after rising 0.2 percent in August.

With cash-for-clunkers having expired in August, consumer spending in September fell significantly on a plunge in motor vehicle sales. Personal consumption expenditures dropped 0.5 percent after a 1.4 percent surge in August. The September decline was led by durables, which fell a monthly 7.0 percent. Nondurables increased 0.7 percent while services advanced a moderate 0.2 percent.

Inflation was subdued in September. The headline PCE price index eased a little to a 0.1 percent increase, following a 0.3 percent jump in August. Core PCE inflation was steady with a 0.1 percent boost in September which is the pace seen for several months.

The inflation-adjusted spending numbers call into question some of yesterday's excitement about a stronger-than-expected GDP report with relatively strong PCE numbers. The quarter "on average" was healthy, but on the margin, it ended with a whimper. Real PCEs fell 0.5 percent in September, following a 1.4 percent spike in August and a 0.2 percent rise in July.

Year on year, personal income growth for September came in at minus 2.8 percent, down from minus 2.7 percent in August. Year-ago headline PCE inflation was steady at minus 0.5 percent in September. Year-ago core PCE inflation was unchanged at up 1.3 percent.

The bottom line is that the consumer sector weakened in September but in line with expectations. The news itself should have no impact on the markets since expectations were met. But equity futures are down on profit taking and belief that yesterday's run up was a little too much. Softening a possible dip in equities is Chevron's pre-open announcement of earnings beating estimates. Markets now will be focusing on the consumer sentiment index coming up shortly this morning.

Note on that chart the huge swing from one month to the next as the money for cash for clunkers ended…

The employment cost index showed modest gains month over month but is showing the largest year over year drop ever recorded in the history of the index:
Third-quarter wages popped higher compared to the second quarter but not at all compared to the year-ago quarter in what are mild results for the employment cost index. The employment cost index, a measure of total compensation, rose 0.4 percent quarter-to-quarter, the same rate of increase as in the second quarter and 1 tenth less than the 0.5 percent gain that was expected. What pressure there is is in the wages & salaries component which rose 0.5 percent vs. two consecutive quarters at 0.2 percent. The benefit component lagged wages, at a gain of 0.3 percent, mild but still a 1 tenth increase from the prior two quarters.

Year-on-year comparisons are the lowest in the 27-year history of the series. Total compensation is up only 1.5 percent, down sharply from 1.8 percent in the second quarter, with wages & salaries up 1.5 percent and benefits, which historically have been a center of concern for policy makers, up 1.6 percent. But private industry, a reading that excludes government employees, shows much less year-on-year pressure with total compensation up 1.2 percent and the benefits component up only 1.1 percent. The cost of labor is not yet a concern for policy makers who instead are focused on the critical need to boost the labor market.

Policy makers trying to create inflation should care about the decline in wages – again, take a good look at that chart, you are a witness to deflation and despite (because of?) the money pumping velocity is crashing and wages have yet to budge.

The Chicago PMI and Consumer Sentiment come out shortly.

I’ve been telling everyone that the market is dangerous at this juncture, yesterday’s move was just one example of crooks run amok. It’s also a terrific example of our country losing touch with the rule of law, allowing companies to issue forward reports without revealing their positions in blatant attempts to manipulate the markets.

Of course the market is ultimately much bigger than any one organization or the government. In our current case, however, both the government and the banksters are complicit in the biggest lie, the biggest heist in the history of mankind. That’s why the entire system is highly likely to fail, the truth always eventually reveals itself and when it does confidence will be lost. That’s what happens when the rule of law is not followed.

Think the market is healthy? Take a gander at the latest release of Corporate Dividends… you know, the part where corporations reward people who provide the equity they have to work with – I know, that sounds so old fashioned, so quaint, but if you remember WAY BACK in history to a time when stock markets were about capital and INVESTING instead of gambling and game playing… wait, let’s just look at the chart of Dividends and let the truth speak loud and clear to you:

Oh, and that collapse right there is despite a financial industry that is allowed to mark their "assets" to fantasy.

Got it? The market rally over the past 7+ months has been based on absolutely nothing. A historic crash in earnings followed by a historic crash in dividend payments. As earnings temporarily level out, people have gotten way, way ahead of themselves in thinking that the DEPRESSION is over – it’s not, not by a long shot. Yet, yesterday the government had the balls to declare the recession over. Whatever, they can call it or define it or spin it into whatever they want, it’s a Depression of historic proportions and will remain so until the debt that got us here is cleared. The more they pump, both psychologically and fiscally, the worse the eventual outcome.

The question now is are we going to zoom higher in the last wave up, or are we going to continue our descent? Again, the EW count says that we have one more up leg to go as we never dropped low enough to eliminate that as a possibility. Yesterday’s pump failed to get the SPX over the 1,061 pivot. A break over that and over 1,070 would lead me to believe that we are on that last leg higher and to expect a run back to the top, or even to overthrow the rising wedges. I think Goldman’s game was to let those wedges break down, which they did, and to then run the markets higher in an attempt to break that pattern. It won’t work because the alternative is a broadening top pattern that is equally bearish.

So, watch today’s action to give us a clue to what is occurring now. The divergences are still there, the Transports, for example, look very, very weak compared to the Industrials, as do the RUT and the NDX. Below is a chart of the Transports to put yesterday’s ramp into perspective. Notice the volume and the flag that has developed. I’m seeing it as a triangle on the NDX and RUT right now, so the direction of break from here in those indices will provide a clue, as will the direction of the dollar which is gaining pretty strongly right now.

The show over the GDP yesterday was just fantasy. Clear the debts, enforce the rule of law, and then you will see a healthy economy and markets. Next time you write a letter to the President, title it thusly…

Traffic - Dear Mr. Fantasy: