Friday, November 13, 2009

Morning Update/ Market Thread 11/13

Good Morning,

Equity futures are up a little overnight, below is a chart of the Dow futures on the left and S&P 500 futures on the right:

The dollar is down slightly, bonds are up (usually not a good sign for equities), oil is down sharply, and gold is close to even.

Oil broke below most recent support this morning and fell beneath $76 a barrel. Yesterday’s petroleum report showed increasing inventories and lower demand. That feeds into this morning’s release of our international trade where both imports and exports were higher, but the rise in imports exceeded the rise in exports, causing a re-widening of the trade deficit.

Now, to an untrained central banker pump monkey, that may sound like a good thing. But the vast majority of the rise in imports was due to the rise in the price and quantity of imported oil. Do we need more oil with inventories at record levels? NO. Is the price of oil up due to an increase in demand? Not according to the weekly petroleum releases! So what’s happening? It’s a monetary phenomena, a result of the sinking dollar. The “experts” on teeveeee claim that a sinking dollar is good for exports. What they fail to take into account is that we are an importing nation, exporting is no longer our strength. Thus we have run up massive debts in every way, in every segment. And with our wages being arbitraged and held down, as the price of commodities rises, it only works to further squeeze the American consumer. It’s a viscous circle, one where higher commodities means more deficits and more debt which means a further sinking dollar and so on. It a circle that simply puts America and Americans in a losing position in the long run in exchange for a short term pop.

Here’s the highlights of the report from Econoday:

The U.S. international trade deficit in September widened significantly on higher oil imports. But the good news is that the freeze up in global trade appears to be thawing as U.S. export rose significantly. The overall U.S. trade deficit widened to $36.5 billion from a revised $30.7 billion worth of red ink in August. The shortfall was worse than the consensus projection for a $32.5 gap. Exports rose 2.9 percent while imports jumped 5.8 percent. The worsening of the trade deficit was led by a wider petroleum shortfall which came in at $20.5 billion compared to $16.6 billion the previous month. The nonpetroleum gap increased to $25.9 billion from $24.3 billion in August.

The widening in the petroleum deficit was due to both more barrels imported and higher prices. Physical barrels imported increased 6.6 percent in September after dropping 9.4 percent the month before. The price of imported oil rose to $68.17 per barrel from $64.75 in August.

Year-on-year, overall exports rose to minus 13.2 percent from minus 20.6 percent in August while imports improved to down 20.6 percent from minus 28.5 percent the previous month.

Overall, the rise in export appears to be more real than the boost in imports. Imports were up on higher oil prices, more barrels of oil, and more automotive imports from Canada. The gain in autos was to replenish auto inventories after cash-for-clunkers. Non-auto imports were up moderately. But manufacturers are benefitting from a lower dollar and healthy gains were seen in capital goods, autos, and consumer goods. While the headline numbers could weigh on the dollar, the details favor it. Equities should like the boost in exports.

Year over year figures are still down tremendously even against now very easy relative comparisons. Remember, one year ago commerce was at a virtual stand still and imports are down 20% from that level.

And yet, this is how Bloomberg reports this terrific news:

Trade Deficit in U.S. Increases by Most Since 1999

By Bob Willis

Nov. 13 (Bloomberg) -- The trade deficit in the U.S. widened in September by the most in a decade, reflecting rising demand for imported oil and automobiles as the economy rebounded from the worst recession since the 1930s.

The gap grew a larger-than-anticipated 18 percent to $36.5 billion, the highest level since January, from a revised $30.8 billion in August, the Commerce Department said today in Washington. Imports surged by the most in 16 years, swamping a gain in exports.

Demand for foreign products may remain elevated in coming months as consumer and business spending improve and companies aim to prevent inventories from collapsing even more. Exports may also rise as expanding economies in Asia and Europe and a weak dollar drive demand for American goods, giving manufacturers such as Dow Chemical Co. a lift.

“The recent upturn in imports reflects a stronger U.S. economy,” Ryan Sweet, a senior economist at Moody’s in West Chester, Pennsylvania, said before the report. “A rebound in exports is helping the economy transition from recession to recovery.”

The dollar dropped after the report. One euro cost $1.4888 at 8:38 a.m. in New York, up 0.3 percent from late yesterday. The yen climbed to 89.54, up 0.9 percent.

Exceeds Forecasts
The trade gap was projected to widen to $31.8 billion, from an initially reported $30.7 billion in August, according to the median forecast in a Bloomberg News survey of 77 economists. Deficit projections ranged from $28.6 billion to $34.1 billion.

A collapse in world trade earlier this year brought the gap down to $26.4 billion in May, its lowest level since November 1999, as imports plunged even faster than exports. As commerce begins to pick back up, global leaders agree more needs to be done to strengthen the expansion.

U.S. Treasury Secretary Timothy Geithner and other finance ministers at the Asia-Pacific Economic Cooperation forum in Singapore this week reiterated a pledge to maintain stimulus efforts “until a durable recovery in private demand is secured.”

Asia is “leading the world” back to recovery, Geithner told reporters at a joint press briefing with his APEC counterparts. President Barack Obama began a swing through Asia today as world leaders work toward a rebalancing that will make global growth more reliant on spending by Asian consumers and businesses and less dependent on their American counterparts.

It goes on and on, all pumping this report, never getting into the why or what may happen as a result in the future. I liken this type of thinking and reporting to flying with blinders on… the inevitable crash is simply a “DUH” moment.

And here is the price report that goes along with the report of International Trade:

Import prices went up in October, in what bears are certain to claim as early evidence of dollar-based inflationary pressures. Import prices jumped 0.7 percent in October driven by a jump in natural gas prices which soared 24 percent but are since on the retreat. Industrial supplies, which include metals, are extending their run of increases. There's even an unusual rise for finished goods with prices for imported capital goods up 0.2 percent which follows a long run of no-change readings. Prices for imported consumer goods rose 0.3 percent following a run of mostly negative readings.

The export side of the report also shows pressure in October with export prices up 0.3 percent and up 0.3 percent even after excluding a price dip for agricultural exports. Industrial supplies also show pressure on the export side with capital-goods prices up a noticeable 0.2 percent though consumer-goods exports fell a tenth.

The year-on-year rate for import prices looks benign at minus 5.7 percent. But the Bureau of Labor Statistics is noting that the index is up 8.1 percent since February. And the BLS is also saying that the price increases for imported raw materials and metals, including precious metals, are in fact "tied" to the dollar. Today's report does show some pressure and is consistent with inflation expectations evident in the financial markets, namely gains in gold and other commodities. Commodity prices popped higher in immediate reaction to the report. Next week will offer two key readings on inflation, the producer price report on Tuesday and the consumer price report on Wednesday.

No, commodities did not rise on this report, oil in fact fell sharply. While prices are up on massive pumping in the short term, the net effect is really on our money and not on the real world economy. The long term damage, however, will indeed be real. Many nations are beginning to squeal over the falling dollar. Pressures are mounting, there is change at hand.

Consumer Sentiment is released shortly.

I mostly went over the technicals in yesterday’s write-up and don’t have that much to add. I will not be surprised if the top is in, but I also won’t be surprised by one more run higher either. I agree with McHugh, that very few people realized the top was in when the market first started to subtly roll over in October of ’07… very few people, myself excluded, were ringing a bell for you at the top. I’m hearing those bells again myself as I just do not believe that the upside potential of this market represents anything other than the destruction of our currency. That’s simply not a winning strategy. I’m going to be working hard in the days ahead to develop and to present a real winning strategy. Thus, you’re going to see me a little bit less in the daily thread, but you’re going to start seeing what I consider to be more important work coming out. I’m going to need your help and your input. In the meantime, the most important help you can give me is to keep the thread running and update one another on events. I’ll swing by as I can. Are those bells I hear?