Friday, October 9, 2009

Morning Update/ Market Thread 10/9

Good Morning,

Equity futures are down slightly mainly on a higher dollar:

The dollar jumped on Bernanke’s comments that as the economy picks up he’ll have to raise interest rates. No kidding? Who could have thunk it? Of course the whiff of higher rates sent the dollar higher… why did he make those comments now? Because the dollar was breaking key support and he has to give lip service to our “strong dollar policy” while at the same time destroying it in actual practice. These type of things always happen when the sentiment gets leaning too strong in one direction. I read that the bearishness on the dollar has never been higher, something like 97% of analysts are bearish on the dollar and that is a sure recipe for the dollar to increase. Oil, gold, and bonds are all down as a result.

Analysts are expecting inflation too, and while I think they get it in the long run, they won’t in the short run.

The international trade figures for August were released this morning. They show a contraction in the deficit, one of the true good benefits of the current recession. Imports are still falling showing weak demand inside the U.S., but exports are picking up just slightly but still down huge year over year:
The U.S. international trade deficit shrank in August on both lower oil and consumer goods imports, reflecting a still sluggish economy. Exports, however, did edge rise, largely on industrial supplies, services, and auto shipments to Canada. The overall U.S. trade gap unexpectedly narrowed to $30.7 billion from a revised $31.9 billion shortfall in July. The August deficit was much smaller than the market forecast for a $33.0 billion differential. In the latest month, exports improved by 0.2 percent while imports declined 0.6 percent. The shrinking of the trade deficit was due to a narrower petroleum shortfall which came in at $16.5 billion compared to $17.8 billion the previous month. The nonpetroleum gap expanded to $24.3 billion from $23.6 billion in July.

The improvement in the trade deficit was due to both a rise in exports and a dip in imports. While exports were up 0.2 percent, there were divergent trends in components. Goods exports actually declined 1.6 percent but would have been up were it not for a sharp decline in civilian aircraft exports. Nonetheless, exports of industrial supplies and autos were up significantly. Also, services exports were up on the "other transportation" component which includes items such as business, professional, and technical services, insurance services, and financial services.

Imports fell on lower imports of crude oil and consumer goods. The narrowing in the petroleum deficit was due to fewer barrels brought in as the price of imported oil rose to $64.75 per barrel from $62.48 in July.
Year-on-year, overall exports rose to minus 20.7 percent from minus 22.2 percent in July while imports improved to down 28.6 percent from minus 30.3 percent the prior month.

Overall, the August trade data show modest improvement in real terms and will add slightly to third quarter growth. The dollar should firm on the numbers and equities should like the export gain.

Before this crisis began we were running deficits in the $60 billion a month range, now they have been cut in half. That’s exactly what the invisible hand is supposed to do, and it’s not done yet despite the government fighting it.

The 60 minute stochastic is overbought and in need of a correction. Note that prices yesterday could not stay over the 1,070 level but they did close above the 1,061 pivot. The next higher pivot is 1,090 and the next lower support is now 1,041.

The Nobel committee has finally lost it completely by awarding Obama the Nobel Peace Prize for his efforts at international peace. This for a person who swore that the first thing he would do is exit the U.S. from two wars and who instead has done nothing but increase troop numbers overseas and increased spending on the military industrial complex that was already insanely out of control. The Nobel committee, of course, had already lost it when they awarded Krugman the prize for his “work” in economics. Mass psychosis is all I can say.

Just wait until it’s time to rock the Casbah…

The Clash - Rock the Casbah: