Thursday, November 5, 2009

Morning Update/ Market Thread 11/5

Good Morning,

Equity futures are higher this morning as we follow what is likely wave c up of wave 2 up. Here’s the overnight action:

The dollar and bonds are down, oil and gold are both flat.

The Monster employment index gained 1 point, rising from 119 to 120, here’s econoday’s report:
Monster's employment index rose 1 point in October to 120 indicating a slight improvement in job demand. Transportation & warehousing, a sector especially sensitive to pivotal shifts in the economy, was unchanged for a third straight month.

Weekly unemployment continues to run over 500,000 per month, this month at 512,000. I remind everyone that we need to ADD jobs at the rate of 150,000 per month just to break even with population growth. The unemployed have been unemployed for record amounts of time, roughly 7,000 per day are falling off the roles, their benefits exhausted.
Initial jobless claims are clearly on the decline, down 20,000 in the Oct. 31 week to 512,000 (prior week revised 2,000 higher to 532,000). The four-week average is down for the ninth straight week, 3,000 lower at 523,750 for a 25,000 decrease from late September. Continuing claims are also declining but here the change is likely a negative, due largely to the expiration of benefits. Continuing claims, in data for the Oct. 24 week, fell 68,000 to 5.886 million for the seventh decline in a row. The unemployment rate for insured workers is unchanged at 4.4 percent, a level that is down 8 tenths from a peak in late June. In contrast, the overall employment rate has continued to climb, at 9.8 percent in September and is expected to increase another 1 tenth in Friday's data for October. Remember, improvement in both initial and continuing claims during September did not correlate to improvement in either payrolls or the household survey.

In more quirky statistics, we see wild swings in worker productivity thanks to annualizing the one month numbers and thank to cash for clunkers and other government spend money we don’t have programs:
Recession induced labor cost cutting has continued into the recovery and businesses are seeing gains in productivity as a result. Nonfarm business productivity in the third quarter surged 9.5 percent annualized, following a revised 6.9 percent boost in the second quarter. The third quarter advance came in above the market forecast for a 6.3 percent surge. This was the largest gain in productivity since the third quarter of 2003, when it rose 9.7 percent. In tandem, unit labor costs dropped an annualized 5.2 percent after declining a revised 6.1 percent in the second quarter. The consensus had projected a 3.9 percent plunge.

The latest spike in productivity reflected both higher output and fewer hours worked. Output jumped an annualized 4.0 percent while hours worked fell an annualized 5.0 percent.

Year-on-year, productivity improved to up 4.3 percent in the third quarter from 1.9 percent the previous quarter. Year-ago unit labor costs dropped to minus 3.6 percent from down 1.2 percent in the second quarter.

A huge part of the third quarter boost in productivity came from the manufacturing sector which saw a 13.6 annualized percent spike after a 6.8 percent gain in the second quarter. The latest manufacturing number was the largest quarterly increase for the series which begins in 1987. Much of the improvement likely came from the auto sector which had seen huge layoffs but recent output increases from the impact of the cash-for-clunkers program.

The latest productivity numbers are good news for companies trying to improve their profits but they are bad news for the unemployed. Firms are expecting remaining employers to work harder instead of starting to rehire.

The third quarter jump in productivity should help lift equities.

Look at that chart! Labor costs are crashing. When will they learn that in a consumer economy people must work in order to spend? It's either a virtuous circle or it's the toilet bowl swirl. I'm seeing swirl. All businesses need workers who earn money through work to buy their products. We are seeing a historic shift in that now some people are getting their money for free from the government for doing nothing – unemployment checks, food stamps, cash for clunkers, housing tax credits, all designed to pump money into the system. No, productivity is not growing at nearly 10% a year, that’s an anomaly of their statistic gathering. Note, however, that the pressure being placed on working people in America is gathering steam. Fewer hours worked, less pay. The middle class squeeze that really got started with Greenspan’s policies is running much hotter now.

Meanwhile the government fights to keep housing expensive, voting just last night to extend the housing tax credit both in terms of time and massively in terms of who’s eligible. The Senate did this in concert with extending unemployment benefits, favoring people who are unemployed in hard hit states over those who are unemployed in not so hard hit states… the logic of which completely escapes me, but that’s our government with their stupid hands ruining every aspect of the America we thought we lived in.

Senate throws a lifeline to the jobless

Lawmakers pass bill extending unemployment benefits by up to 20 weeks. Legislation also extends homebuyer tax credit into next year.
NEW YORK ( -- After weeks of partisan debate, the Senate voted on Wednesday to lengthen unemployment benefits by up to 20 weeks and to extend the $8,000 homebuyer tax credit.
The closely watched legislation would extend jobless benefits in all states by 14 weeks. Those that live in states with unemployment greater than 8.5% would receive an additional six weeks. The proposal would be funded by extending a longstanding federal unemployment tax on employers through June 30, 2011.

The measure would apply to those whose benefits will run out by Dec. 31, which is nearly two million people, according to Senate estimates. Those whose checks have already stopped would be able to reapply for another round.

The vote was 98 to 0.

"With 15 million Americans still unemployed and vying for just three million available jobs, we did the right thing today by passing this bill and doing it in a fiscally responsible way," said Sen. Max Baucus, D-Mont., who helped craft the bill. "Today, we gave unemployed Americans the chance they need to get back on their feet, get through this tough time and get working again."

The measure now moves to the House, which passed its own benefits extension in September, giving an additional 13 weeks in high-unemployment states. The two bills must now be reconciled, though the House is expected to support the Senate's version.

"Now that this legislation has passed the Senate, I will bring it to the House Floor for a vote as early as tomorrow," said House Majority Leader Steny H. Hoyer of Maryland.

The bill would then move to the White House for the president's signature. Last week, the administration said it supports extending benefits.

7,000 a day losing benefits
The Senate has been bickering over the details since September, and that cost more than 200,000 people their benefits. Some 7,000 unemployed Americans run out of benefits each day, according to the National Employment Law Project.

Millions of Americans are now depending on unemployment benefits, as the unemployment rate continues to soar. The unemployment rate hit a 26-year high of 9.8% in September, and is expected to go even higher when the October numbers are released on Friday.

More than one in three people who are unemployed have been out of work for at least six months, according to the law project.

Lawmakers twice lengthened the time people can receive checks to as much as 79 weeks, depending on the state. But at least one Republican warned this would be the final extension.

"The public needs to ... know, this is the last extension," said Johnny Isakson, R-Ga.

Tax break for buying a home
The legislation also would extend the $8,000 homebuyer tax credit to contracts signed by April 30 and closed by June 30. The controversial credit, which many say has boosted home sales in recent months, was set to expire after Nov. 30.

The Senate's bill also created a $6,500 credit for those who buy a home after owning one for the last five years. That measure would apply to contracts signed by April 30 and closed by June 30. The current credit defines a first-time homebuyer as someone who has not owned a residence within the past three years.

The Senate bill would raise the adjusted gross income cap to $125,000 for single filers and $225,000 for joint filers. The amount of the credit currently begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers.

"It's gonna put people back to work, the home builders, put people in the real estate business," said Sen. Chris Dodd, D-Conn. "The kind of jobs that can make a difference."

The extension will cost $10.8 billion over 10 years, according to the Joint Committee on Taxation.

Through mid-September, 1.4 million tax returns had qualified for the credit, according to the IRS. Some portion of those returns, which the IRS couldn't specify, represents buyers who took advantage of an earlier version of the tax credit, which was only worth $7,500 and has to be repaid over time.

By the end of November, the credit will have been used by 1.8 million homebuyers, at least 355,000 of whom would not have bought a house without the tax break, according to estimates by the National Association of Realtors.

"The data on the present home buyer tax credit show that the credit has had its intended impact -- sales have jumped in recent months to a projected 5.1 million for the year and housing inventory has been trimmed, thus stabilizing home prices noticeably," said Ron Phipps, the association's first vice president, in Senate testimony last month.

The credit, however, has also posed many problems. Critics say it's a waste of money because most of those claiming the credit would have bought homes anyway.

It's also been the target of fraud. Some 74,000 people claimed more than $500 million in credits even though they may not be first-time homeowners, according to Treasury officials. And more than 580 children, including some as young as 4-years-old, have claimed the credit.

"Some key controls were missing to prevent an individual from erroneously or fraudulently claiming the Credit and receiving an erroneous refund of up to $8,000," said J. Russell George, Treasury inspector general for tax administration, before a House subcommittee last month.

Was there ever any doubt they would vote to spend more money they don’t have, or that they would fight to keep housing UNAFFORDABLE to those who are smartly and patiently waiting for home prices to come down into historic affordability levels? Does everyone get that the tax credit is designed, not to provide affordable shelter for Americans, but to provide more taxpayer life support to the banks? Have we learned anything? Apparently not, and thus wave C down is going to be long and painful, and it will continue until the lessons of math and history are learned again. Yes, that is part of the cycle, but this cycle is on a much higher level than even that of the Great Depression. I’m thinking this should be called the Great Deception.

They justify these actions in the name of being humanitarian, but in fact what they are doing is simply insane. There is very little real economy left, either these programs go on forever (likely) or when they eventually end, the economy will simply continue to crumble at that time. Everyone will blame everyone else, never seeing the role they played in creating a shell of a once vibrant economy.

I covered the technicals pretty thoroughly yesterday evening. It looks like we are sketching out a little a-b-c that follows wave 1 down to produce wave 2. The top of wave twos is the place to get short, in my opinion. I think we’re likely to run up to the 1,061 pivot and possibly to the 61.8% fib which is located just above 1,070. Somewhere near this range, if the wave count is correct, we should roll over into wave 3 down. By the way, this wave 2 and wave 3 are most likely all a part of a larger wave 1, just to put every thing into perspective – there’s a long way to go and there will be a lot of opportunity along the way.

I’m not sure how long c of 2 up will last… it could top later today, tomorrow, or even early next week. I would not be surprised if it fizzled today, especially with the gravestone doji produced yesterday. Proportionality would suggest, however, that maybe it runs into the weekend, and then wave 3 would begin next week. And Monday is the 9th, a Bradley and Fibonacci turn date. I should note that it is still possible by the count that wave B up has not finished… we could even go on to new highs, and thus it could be that we make a turn higher for a final run up. I HIGHLY doubt that, not with all the other signs of a top, like the rising wedges. But, that’s why when I get short, I place stops and limits on my positions and do not accept large losses. If I’m wrong, then I’m wrong, I fight to keep my mistakes small. Something our government should have been doing and learning years ago. Ahh, if only they had one of these…

Styx – Crystal Ball: