Wednesday, December 30, 2009

Morning Update/ Market Thread 12/30

Good Morning,

Equity futures are down this morning, here’s the overnight action in the DOW and S&P:

The dollar is up, bonds are flat, oil is flat, and gold is down.

The Chicago PMI comes out at 9:45 Eastern followed by the petroleum report at 10:30. Tomorrow we’ll get to see Jobless Claims and that could be the only real market mover of the week, the markets are closed on New Year’s Day.

Interesting that now GMAC is having to come back and ask for a third round of bailouts from the government, this time asking for $3.5 billion more in addition to the $13.5 billion already received. The people of America have been completely deceived. They are being told that it’s all the union’s fault when it comes to the auto maker’s problems, the same groups get blamed for education, and anywhere there is trouble. I even see bloggers falling for this nonsense. The media, owned by the same people who own and finance all the large businesses in America brainwash people into believing such falsehoods. General Motors FAILED not because of their union, but because they took on shameful amounts of risk in their financing units. An auto manufacturer saw easy money to be had in the paper chasing industry and got massively involved with financing subprime homes, derivatives, and even helped to create a bubble in the financing of automobiles in the same way they and others created a bubble in home prices.

This led them to losses that were so large that they could have literally paid their employees, who where conducting the only legitimate business of the company, NOTHING and NO BENEFITS and they still would have lost billions! People who are bashing the unions need to do their research and they need to study the history of the United States and the Industrial Revolution. They need to give thought as to the balance of power that exists, or is supposed to exist, between the workforce and those who provide the capital. I can tell you this, the next time you fly in an airplane, that covers miles far safer than any form of transportation there is, and you land safely, you can thank the pilot’s union for bringing about improvements in safety that simply would not have ever happened had they not been able to organize. There is a balance that needs to occur, and once again, when the forces are out of balance it’s usually due to government getting in the way. Here’s how it should work – if a union becomes so powerful that they are able to demand so much that the business fails, then the union also fails. Now look at General Motors who is not allowed to fail. Union’s fault? Bull.

The action in the markets has obviously been on extremely weak volume over the past two holiday weeks, therefore not a lot can be read into it until we get the volume that will come after we shift into the new year. Yesterday there were a couple of things that caught my eye, one was in the IRX, the very short term bond fund. It moved sharply higher breaking out of its current range:

This is the rate that most closely coincides with the Federal Funds Rate. Many believe that it leads the Fed who react to the pressures in the market place and follow with rate increases or decreases. Sometimes that’s definitely the way it works. Since the current Funds Target Rate is capped at .25%, the IRX moving above that level would signal that the Fed needs to make a move. Of course they have been buying down this end of the yield curve, so we don’t really know what is real market action here and what is not. Is it rising because they are really ending QE? Or is it rising because the economy is supposedly more healthy? We don’t know, that’s the problem with government interference, especially when it’s done mostly in secret and is covered up. The bottom line is that something changed and this needs to be watched.

In the article I wrote on capital flows, I mentioned that the TNX (the 10 year Treasury fund) produced what appears to be a topping hammer. Yep, verified by yesterday’s action which bearishly engulfed it. This action is occurring just as the longer term bonds reach the neckline of those very large Head & Shoulder patterns, so we may see a change of direction in bonds for the time being. Again, we’ll have to watch and see how long that sticks and whether or not those larger necklines get broken. The supply of debt, regardless, is simply stunning and I will be surprised if they do not eventually break:

The XLF is still looking very weak, yet another down day and again it fails to make progress back up to its November high:

The fact that the market is failing to take advantage of the holiday low volume to ramp even higher towards that 1,200 target is telling us something. No need to get ahead of any move right now…

Rolling Stones - Time Is On My Side (1964):