Thursday, December 10, 2009

Morning Update/ Market Thread 12/10

Good Morning,

Equity futures are up a little this morning after being down sharply overnight. Below is the overnight action in the DOW and S&P:

The Dollar is almost flat, right at the 76 area, while bonds are down a little. Oil and gold are close to even following very large down moves yesterday. Oil is now down 13.4% from its recent $82 peak, while gold is off about $100 an ounce from its peak, about a 9% fall in just the past 5 days.

I turned on my computer this morning and found that I was viewing some sort of totally bizzaro sick and twisted zombie flick! There stands President Obama accepting the Nobel Peace Prize stating that “peace requires sacrifice” while having just ordered 30,000 more troops to go fight in a very pointless war, one in which any sane person has to ask, “What does victory look like?” Sick and demented is all I can really say. Wait, no, actually I can also add that this twisted rational for “security” is accelerating the process of bankrupting our nation and will ultimately make us far less secure.

Speaking of bankrupt, yesterday, New York Governor Patterson got up and said that he’ll probably be sued for saying that “New York has run out of cash,” and for making the following statement, "You can't spend money that you don't have."

BLASPHEMY! What do you mean you can’t spend money you don’t have? That is the great new American tradition, I think I’ll sue!

But here’s the reality… one state after the other is going bankrupt. This is a tremendous problem that is going to become more fully evident as time passes. According to the Census Bureau, state revenue fell by a whopping 16% last year while at the same time their expenses skyrocketed. Their fastest growing expense? Welfare. Eleven states spent MORE THAN 25% OF ALL THEIR MONEY ON WELFARE.

And I hope that everyone is paying attention to what is going on at Citi Bank. They took your money and lent $8 Billion of it to Dubai. Strange, but the U.A.E. was one of the largest investors in Citi and bought a large stake in Citi which they are now selling. Two entities that need the cash, both want it. And at the same time Citi is being pressured to pay back the TARP. Could there be more to these events? How about the fact that the speculation is all of a sudden is coming out of oil. Are messages being sent? I don’t know the game, but I am paying attention.

The media is touting that foreclosures are slowing because there was an 8% month over month decline in foreclosure filings, the 4th monthly drop in a row. Ahhh, hello, McFly? Foreclosures are UP 20% over this time last year, and we are dead in the middle of the trough with massive Option-Arm resets coming up.

The monthly report on International Trade came out this morning, showing a narrowing of the trade deficit and improvements in the amount of both imports and exports that is causing the year over year decreases to narrow from the prior 30% drop to a little less than 20% year over year for imports, and from the prior nearly 20% yoy drop in exports to “only” an 8.6% yoy drop. Remember that these figures are now compared to a time a year ago when these figures were in free fall.
The latest international trade report shows exports continuing an uptrend, boosting U.S. manufacturing. Imports also rose, likely reflecting inventory rebuilding for autos and cautious hope about the consumer and business investment. The overall U.S. trade deficit narrowed to $32.9 billion from a revised $35.7 billion gap in September. The deficit was smaller than the market forecast for a $36.4 billion differential. Exports advanced 2.6 percent while imports gained 0.4 percent. The improvement in the trade deficit was primarily due to a narrowing in the petroleum deficit, which came in at $17.8 billion compared to a gap of $20.5 billion the previous month. The nonpetroleum gap shrank to $25.2 billion from $25.7 billion in September.

The really good news in today's report is that exports are benefitting from a lower dollar and reasonably healthy demand abroad. Exports were led by a $1.2 billion jump in capital goods ex autos in October, followed by gains in consumer goods and autos.

But apparently, U.S. businesses are a little optimistic about domestic demand for both capital equipment and consumer goods. Import gains were led by a $1.1 billion boost in capital goods ex autos, followed by a $1.0 billion rise in consumer goods imports and $0.4 billion for autos. Industrial supplies imported fell $1.8 billion, with the crude oil component falling even more-by $2.4 billion. However, some of the auto imports may be lagged effects from the surge in auto sales under the cash-for clunkers program as import auto dealers restocked.

The narrowing in the petroleum deficit was due to both fewer barrels imported and slightly lower prices. Physical barrels imported decreased 9.6 percent in October after rising 6.6 percent the month before. The price of imported oil slipped to $67.39 per barrel from $68.17 in September.

Year-on-year, overall exports in October improved to minus 8.6 percent from minus 12.2 percent the month before while imports increased to down 18.8 percent from minus 20.3 percent in September.

Overall, today's international trade report is good news for fourth quarter estimates for economic growth. The lower trade deficit adds to GDP growth. Equities should like today's report but initial claims rose instead of declining as expected and it is uncertain which report will get the most attention by traders. At time of release, markets were little changed, indicating that the two reports initially were a wash.

Weekly jobless claims rose by 17,000 over last week. In the background sits a record number of unemployed, nearly 16 million in all. And also keep in mind that with huge numbers falling off the roles, any increase here means that the situation is very poor:
Initial jobless claims ended five weeks of improvement, rising 17,000 in the Dec. 5 week to 474,000 for the highest level since mid-November. But the four-week average continues to improve and is right at the current level, down 7,750 to 473,750. Market News International also notes that seasonal contraction in construction, tied to heavy weather, is another offsetting factor in the latest week's rise. Continuing claims in data for the Nov. 28 week fell very sharply, down 303,000 to 5.157 million. The drop in continuing claims reflects an uncertain mix of new hirings and the expiration of benefits. The unemployment rate for insured workers continues to come down, 2 tenths lower to 3.9 percent. This rate peaked in July at 5.2 percent in a major contrast with the overall unemployment rate which, at 10.0 percent in November, hit a 10.2 percent peak in October. Today's report is a bit of a disappointment and will lend modest support to those who question whether the November jobs report, with its big improvement, will prove to be a fluke.

So, here we sit on the 10th of December, the last spiral Fibonacci date of the year that emanates from the top and bottom of the market in 1929 and 1932 respectively. Remember to give these dates a couple of days to see what happens, and certainly don’t bet the farm on something that has only proven to be interesting, nothing more as of yet.

Yesterday’s action actually produced another small movement on the McClelland Oscillator, thus you should expect a rather large movement today or tomorrow. Back to the top of the range? Yes, I’m as tired of this range as anyone, it is definitely testing everyone’s patience. Yet, I know that gravity cannot be ignored forever and I remain clearly focused with my eye on the ball – the ball in this situation is DEBT. Until the financial system and the burden of debt is lifted, real progress will be impossible. Obviously that doesn’t mean that the hot money won’t head into equities pushing them to formerly unheard of valuations. For me, I view that game as extremely risk filled and it’s not the place I will place my personal money. Thus I sit patiently watching until we see a break of the range and we see a clear E.W. count that eliminates possibilities and provides some clear direction.

It’s interesting to watch the Utilities here as they went onto a new high yesterday and again are doing so today. Meanwhile the XLF still languishes and looks plain old sick.

1,090 is still support, 1,100 is overhead followed by the 1,107 pivot...

I am coming out with what I hope is a motivational outline of our proposal today. I won’t be releasing details of the plan until next week, but I want to start laying a foundation of understanding now. I have developed what I think is a workable plan that includes incentives for individuals, states, businesses, and even banks to get behind it. Additionally I am working on some innovative ways to get this in motion, the last thing we want is to just jawbone a bunch of ideas to death! We want action and I am working towards that and will be discussing that, too, in the next day or two.

Hey, eventually the market will surrender to the forces of gravity, and it’s going to be our job to get the politicians to surrender to a wise and stable system of money moving forward!

Cheap Trick – Surrender: