Friday, December 31, 2010

Morning Update/ Market Thread 12/31

Happy New Year’s Eve! This will be just a quick update to end 2010 and to provide an open thread for comments as there is no significant economic data released today. Markets are open, however, and equities are opening lower, bonds are higher, the dollar is lower, oil is continuing to correct lower and is now at $89 a barrel, and gold is slightly higher while silver hovers at the $30 an ounce mark! Silver, by the way, began the year at $16.50 an ounce thus gaining nearly 82% on the year! Gold gained about 29%, while oil is up nearly 13%. And thus the money we work to earn is worth less. Price the stock market in gold, and it is worth less not more.

I found “Guestimator’s” number analysis of yesterday’s Weekly Unemployment Report both interesting and very pertinent. He simply compared last year’s data for the same week to this year’s, and here is what he found:
“Last year's SA (seasonally adjusted) number for this week was 454,000, and NSA (non seasonally adjusted) was 556,000. That was SA adjustment of -18.3%.

This year's SA number for this week is 388,000, and NSA is 521,000. That is a SA adjustment of -25.5%.
While the NSA number is only 35,000 lower than this time last year, the SA number is 133,000 lower!

This doesn't make much sense.”

Indeed! That doesn’t make much sense and it shows that the actual numbers are lower than last year’s, but not by very much. Yet the reporting of the numbers is twisted to make it appear much lower due to the huge seasonal adjustments the Department of Labor is using.

And that pretty much sums up all the data I see. The dollar was devalued tremendously in 2010, thus data priced in dollars APPEARED to improve. The financial system is still just as bankrupt as ever, more and more fraud is being uncovered all the time yet we don’t prosecute anyone meaningful and we don’t change anything meaningful, we simply continue to use mark-to-fantasy accounting along with other types of accounting frauds to sweep the very real problems under the rug.

The rug is bulging. It’s going to be a very interesting 2011!

Thursday, December 30, 2010

Morning Update/ Market Thread 12/30

Good Morning,

Equity prices are roughly flat heading into the open this morning. Bonds are lower, the dollar is lower, oil, and gold are also slightly lower. The Yen continues to gain strength and has already passed previous areas that have triggered intervention. You can see on the weekly chart below that it has fallen below the bottom of the falling wedge and is nearing previous lows – down on this chart equals stronger yen:

Weekly Unemployment Claims came in at 388,000 for Christmas week. Of course the media is touting it as a big deal, but of course it is just another contrived holiday week number where seasonal adjustments made it look far better than it actually is. Without those seasonal adjustments, the actual number of claims, even with the holiday, ROSE by 24,879! Here’s Econospin:
In what the government describes as a clean report, initial jobless claims fell a very steep and very surprising 34,000 in the December 25 week to a suddenly sub-400,000 level of 388,000 (prior week revised 2,000 higher to 422,000). Adjustments become a big factor during the shortened weeks of the holidays which focuses attention on the four-week average, and the average confirms improvement in the labor market, falling a steep 12,500 to 414,000.

Results on the continuing-claims side are mixed. Slightly more received continuing benefits in the December 18 week than the prior week and the unemployment rate for insured workers rose one tenth to 3.3 percent. A drop in the four-week average is the positive news, down slightly to 4.120 million and down more than 150,000 from the month-ago comparison.

The month-ago comparison for initial claims shows a dramatic 50,000 improvement with the four-week average showing a less flashy but meaningful decline of about 15,000. The Labor Department's confidence that calendar and related adjustment factors are not at play gives today's report special importance. Yet declines in claims during November didn't add up to improvement for underlying payroll growth, that and yesterday's data on consumer confidence, where assessments of the jobs market deteriorated, will limit confidence that payroll growth has picked up this month.

I read the same report from the DOL as they do… they did not say anything of the sort about them being “confident” that there were no special factors – in fact they are simply silent about it. While it would be nice if this number could get below 400k and stay there, I suspect that this week will prove to be an outlier due to the holidays. The trend is certainly down though, and year over year numbers are only down slightly. Note that the RATE actually increased in this report which tells me that games are being played with the figures and possibly the size of the workforce. Bottom line is that this number still shows continued job losses, not job creation – it needs to get below 350k and stay there to indicate job expansion.

The Chicago PMI is released at 9:45 Eastern this morning and will be followed at 10:00 by Pending Home Sales. I’ll report both inside the daily market thread. Tomorrow is New Year’s Eve, markets will be open but there are no scheduled significant economic releases until next week.

Yesterday was the last scheduled POMO of the year. They will pick up again next week on Tuesday January 4th, and will run every day of the week through Friday. This must eventually end, but can it? And what will be the result if it does? Sad and frustrating to watch our government let/encourage private banks take over our markets. This does the exact opposite of promoting a healthy and dynamic economy. It allows pig companies that have failed to still exist and thus block out innovation and true competitiveness.

Meanwhile the markets drift higher on nothing volume. Severe divergences are in place on all time levels up through monthly. The RSI divergence on the weekly charts is as large as at the ’07 top. Can POMO hot money keep markets aloft indefinitely? I think 2011 will answer that question – and I think the action in gold and silver already have.

Wednesday, December 29, 2010

Morning Update/ Market Thread 12/29

Good Morning,

Equity prices are higher this morning, yesterday we did not receive the large price move called for by the small move in the McClelland Oscillator, so a large price move today should be expected. Bonds are roughly flat after a large move down yesterday, the dollar is lower this morning, both oil and gold are higher.

We have hot money pushing the price of oil near $92 a barrel, this is simply not a supply/demand phenomena, it is money fresh off the printing press phenomena. We know this is true because gold and silver are also zooming. Copper is at an all-time high, again, not due to some explosion in demand, but rather due to an explosion of hot money. This only makes things more expensive for consumers. Gasoline at $3 a gallon now, and the CEO of Shell just said he thinks we’ll see $5 a gallon gasoline by 2012! This will simply make the vast majority of Americans poor… a disaster.

The hypocritical Mortgage Banker’s Association was scheduled to release Purchase Application data today, but is declining citing the holidays. They say they’ll combine weeks and give us a report next week. In other words, the data was so bad even their own trumped up reporting methods would look horrid. There’s no other scheduled data releases today, but there’ll be a slew of reports tomorrow.

Yesterday we had a very weak 5 year auction as the demand for debt wanes world wide. The state of Illinois is discussing borrowing $14 billion FROM WALL STREET in order to keep paying their bills! Talk about loan sharks and mobsters, Illinois is a fitting place for a transaction like that. Loan shark debt on top of tremendously excessive debt, now there’s a “solution” that’s sure to last.

But that’s exactly what’s happening all across Europe right now too, as just yesterday the ECB had trouble sterilizing all the debt it wanted to. Too much debt, so the solution offered inside of the debt pusher’s debt backed money box is to pile on new debt while they print up money to cover it. It’s like watching a slow motion train wreck, and you know the outcome’s not going to be pretty.

Meanwhile our largest creditor, China, is attempting to take the last bastion of true manufacturing from the United States and we’re letting them take it. In fact GE, a company who the tax payers just bailed out and who should have been allowed to fail, is now giving the Chinese the technology necessary to compete against Boeing commercial aircraft:
China Squeezes Foreigners for Share of Global Riches

General Electric Co. is finalizing plans for a 50-50 joint venture with a Chinese military-jet maker to produce avionics, the electronic brains of aircraft. The deal with Aviation Industry Corp. of China would give GE access to a Chinese government project aimed at challenging Boeing Co. and Airbus in the civilian-aircraft market.

For those who think that being in debt to China poses no real risk, you should talk to a Boeing worker about that. And you can bet that it won’t be long before they are taking this technology and using it to take the other last bastion of American manufacturing, namely producing weapons. Evidently America is hell bent on only producing worthless paper.

Tuesday, December 28, 2010

Morning Update/ Market Thread 12/28 - Bubbles Revisited...

Good Morning,

Equity futures were gaining ahead of the open with the dollar lower, the Yen making a large advance, bonds lower, oil back above $91 a barrel, and gold higher as well.

There was a small change in the McClellan Oscillator yesterday, thus we can expect a large directional move either today or tomorrow.

Case-Shiller Home Prices showed the largest drop in prices in over a year, falling 1.2% in the month of October on a not seasonally adjusted basis and .9% when adjusted. Here’s Econoday:
Home prices are falling at an accelerating rate according to the S&P Case-Shiller report that shows a minus 0.9 percent headline for October's 10-city adjusted composite. Note this index is a three-month average, which in this case smoothes out the depth of October's decline. Declines in the unadjusted readings, reflecting price discounting during cold months, are slightly more severe. October's drop follows three prior declines for the adjusted index: minus 0.8 percent in September, minus 0.5 percent in August, and minus 0.1 percent in July.

Year-on-year, sales are up 0.2 percent for the 10-city adjusted index but are down 0.8 percent for the 20-city index which is being depressed by mid-single digit declines for Atlanta, Detroit and Portland. Phoenix, Charlotte and Seattle, also part of the 20 index, also show sizable on-year declines.

The appearance of on-year declines in this report, which is noted for its breadth and accuracy, raises the risk of a pivotal downshift in home prices. Yet the outlook for home prices isn't completely negative given price gains in last week's reports on existing homes and new homes and also the FHFA house price index. Markets are showing no significant reaction to today's report.

I believe home prices have further to fall and will do so over the next few years.

Consumer Confidence for December cratered again, this time falling to yet another depression era read of 52.5 when 57.4 was expected. This is down from November’s 54.1.

I think it’s important to remind people about the supposed increases in retail sales numbers… those numbers are biased in two ways – first they are measured in dollars, and second they contain substitution bias because they fail to account for stores that have gone out of business. Thus we need to take the comparisons that are offered of this Christmas season to years past with a large grain of salt.

The VIX climbed significantly yesterday despite a rise in stock price, yet another divergence that says some large players are lining up for a reversal. There are 5 distinct waves up since the June low, a higher level correction is coming soon:

Those five waves up are either wave C up of a large A,B,C correction, or they comprise wave 3 up of a primary bull market. If it is a wave C, as I suspect, then next will begin a series of lower lows. If, however, the more bullish stock scenario is playing, then we will get a wave 4 next with a more shallow decline which would then be followed by a higher high. The only way that happens, in my opinion, is if the rampant fraud is continued to be covered up.

I know there are a ton of bulls out there and they now can point to rising prices from March of ’09 which is approaching two years of the bears being on the sidelines. During those two years the markets have been artificially propped with trillions and trillions in artificial support, the markets subverted by the “Fed” and the members that comprise it. Most Americans no longer participate in the market as they know it is trumped up and they have seen what can and will happen when the accounting rules change or when the bankers decide that they are not getting their way. Thus the market is not sustainable, valuations do not support it, incomes do not support outrageous debt levels, and thus it will come to an end, again, in my opinion.

But this is the way with all bubbles, as Hyman Minsky observed and as I wrote about in my book Flight to Financial Freedom prior to the peak in home prices and long before the last crash. I think it’s time to review the Seven Bubble Stages versus today’s stock market once again, I’ll place my current comments within brackets [ ]:
The late Hyman Minsky, Ph.D., was a famous economist who taught for Washington University’s Economics department for more than 25 years prior to his death in 1996. He studied recurring instability of markets and developed the idea that there are seven stages in any economic bubble:

Stage One – Disturbance:
Every financial bubble begins with a disturbance. It could be the invention of a new technology, such as the Internet. It may be a shift in laws or economic policy. The creation of ERISA or unexpected reductions of interest rates are examples. No matter what the cause, the outlook changes for one sector of the economy.
[The innovation and widespread use of derivatives sparked the former bubble, it was the fuel to the fire. What was the latest major change? The unprecedented bailouts of the banking industry, the resumption of mark-to-model accounting, and then the “Fed” began “Quantitative Easing” as a new policy tool, i.e. money printing which now provides the new fuel for the fire]

Stage Two – Expansion/Prices Start to Increase:
Following the disturbance, prices in that sector start to rise. Initially, the increase is barely noticed. Usually, these higher prices reflect some underlying improvement in fundamentals. As the price increases gain momentum, more people start to notice.

Stage Three – Euphoria/Easy Credit:
Increasing prices do not, by themselves, create a bubble. Every financial bubble needs fuel; cheap and easy credit is, in most cases, that fuel. Without it, there can’t be speculation. Without it, the consequences of the disturbance die down and the sector returns to a normal state within the bounds of “historical” ratios or measurements. When a bubble starts, that sector is inundated by outsiders; people who normally would not be there. Without cheap and easy credit, the outsiders can’t participate.

The rise in cheap and easy credit is often associated with financial innovation. Many times, a new way of financing is developed that does not reflect the risk involved. In 1929, stock prices were propelled into the stratosphere with the ability to trade via a margin account. Housing prices today skyrocketed as interest-only, variable rate, and reverse amortization mortgages emerged as a viable means for financing overpriced real estate purchases. The latest financing strategy is 40, or even 50 year mortgages.
[Since the world is now saturated with credit, the latest innovation is to simply print money and buy up the markets. This WILL eventually fail as a market is not a market when there are only a very few participants.]

Stage Four – Over-trading/Prices Reach a Peak:
As the effects of cheap and easy credit digs deeper, the market begins to accelerate. Overtrading lifts up volumes and spot shortages emerge. Prices start to zoom, and easy profits are made. This brings in more outsiders, and prices run out of control. This is the point that amateurs, the foolish, the greedy, and the desperate enter the market. Just as a fire is fed by more fuel, a financial bubble needs cheap and easy credit and more outsiders.
[I think we were seeing this particularly in the second half of this year. We are also seeing this again in commodities. Note that China just released its initial commodity allotment for 2011, which is about 15% less than 2010.]

Stage Five – Market Reversal/Insider Profit Taking:
Some wise voices will stand up and say that the bubble can no longer continue. They argue that long run fundamentals, the ratios and measurements, defy sound economic practices. In the bubble, these arguments disappear within one over-riding fact – the price is still rising. The voices of the wise are ignored by the greedy who justify the now insane prices with the euphoric claim that the world has fundamentally changed and this new world means higher prices. Then along comes the cruelest lie of them all, “There will most likely be a ‘soft’ landing!”
[This is the key paragraph that I want to point out. I see fewer and fewer “wise voices” and believe that due to the duration of the current run up in stocks that they are being ignored once again. This is soooo typical of bubbles, it is a hallmark. Those wise voices look foolish in the face of rising and rising prices, only they are proven right in the end. Here’s a wise voice who is being ignored now:

Will he be proven wrong? I don’t think so. In the end the foolish will look as foolish as they always do when a bubble is in full blossom.]

Stage Five is where the real estate industry is today [2005/2006]. This stage can be cruel, as the very people who shouldn’t be buying are. They are the ones who will be hurt the most. The true professionals have found their ‘greater fool’ and are well on their way to the next ‘hot’ sector, like the transition from real estate to commodities now. Those who did not enter the market are caught in a dilemma. They know that they have missed the beginning of the bubble (gold, silver, and oil today [2005/2006]). They are bombarded daily with stories of easy riches and friends who are amassing great wealth. The strong will not enter at stage five and reconcile themselves to the missed opportunity. The ‘fool’ may even realize that prices can’t keep rising forever… however, they just can’t act on their knowledge. Everything appears safe as long as they quit at least one day before the bubble bursts. The weak provide the final fuel for the fire and eventually get burned late in stage six or seven.
[This and Stage Six is where the market is now. The “Fed” is quite intentionally attempting to sucker new entrants into the market. They have even stated that is their intention publically.]

Stage Six – Financial Crisis/Panic:
A bubble requires many people who believe in a bright future, and so long as the euphoria continues, the bubble is sustained. Just as the euphoria takes hold of the outsiders, the insiders remember what’s real. They lose their faith and begin to sneak out the exit. They understand their segment, and they recognize that it has all gone too far. The savvy are long gone, while those who understand the possible outcome begin to slowly cash out. Typically, the insiders try to sneak away unnoticed, and sometimes they get away without notice. Whether the outsiders see the insiders leave or not, insider profit taking signals the beginning of the end (remember who has sold their rental properties?).
[Are insiders sneaking out the door now? YOU BET THEY ARE! And they have been for quite some time. They have been selling to the “Fed” as they fully realize that the true market fundamentals cannot be supported once the “Fed’s” false accounting tricks and phony money are removed from the market.]

Stage seven – Revulsion/Lender of Last Resort:
Sometimes, panic of the insiders infects the outsiders. Other times, it is the end of cheap and easy credit or some unanticipated piece of news. But whatever it is, euphoria is replaced with revulsion. The building is on fire and everyone starts to run for the door. Outsiders start to sell, but there are no buyers. Panic sets in, prices start to tumble downwards, credit dries up, and losses start to accumulate.
[This has already begun in the credit markets, but has yet to begin in equities. It will.]

This is where you may see the “lender of last resort” who is usually the government. The government, although they were talking up a soft landing, are now forced to step in to prevent the crises from spreading to other sectors. Ironically, this is where the savvy investor who profited before, really profits now. With government backing, they are asked to step in and return “normalcy” to a now damaged sector.

The government’s attempt to “put out the fire” usually works. However, the conditions beyond the year 2010 will require oceans of water that the government does not posses. You must be ready!

And here we are… Remember that the “Fed” is NOT the government. At some point the true government, Congress, will be required to step in and clean up the mess in some REAL regard. This has most certainly NOT occurred yet. The true market will be observed in the end…

Monday, December 27, 2010

Morning Update/ Market Thread 12/27

Good Morning,

I hope that everyone had a Merry Christmas, we have another low profile and low volume week going into the New Year this week. Prior to the open today, equities are lower, the dollar is slightly lower, bonds are roughly flat, oil is lower, and gold is higher.

It’s another very light week for economic data, none today, Consumer Confidence and Case-Schiller Home Prices tomorrow, then Pending Home Sales and Chicago PMI on Thursday to go along with the usual weekly reports.

The big news this weekend is that China raised interest rates by a quarter percent for the second time in the past two months in an attempt to cool off rising inflation.

The problem with raising interest rates in this environment is that the rest of the world is not ready to. I say it’s a problem because raising rates will simply attract more hot money into their country from overseas. This will prompt the need for them to enact more controls on capital entering their country, and those controls are difficult to maintain. As they raise interest rates and as we create hot money from nothing, the people who obtain the hot money are very likely to chase the higher returns that China offers and thus a HUGE carry trade is created.

We can’t raise our rates to match them because we are saturated with debt. Heck, I’m reading articles wherein people predict that our “Fed” will raise rates in 2012. Oh really? For that to happen, we must first stop QE… does anyone really see that coming to an end? Last I checked the numbers are still getting bigger, not smaller. So, we continue to print money and a big percentage of it simply goes overseas. Thus a cycle of inflation pressure is put on China and the difference between here and there grows larger as the interest rate differential grows.

If you look at historical periods of rising interest rates, you will find rising stocks during those periods. What’s interesting about this period of time is that it is the Chinese who are leading with rate hikes while we POMO our markets to death. The transition from money printing to higher interest rates for us may not be by choice, and thus the usual higher interest rate correlation will not be the same.

Looking at a 30 minute chart of the DOW, there is a clear rising wedge in play. This wedge is within a larger rising wedge:

Everywhere I look I still see negative divergences. We’re still in wave 5, but the holiday season is now growing short.

Friday, December 24, 2010

Uncle Jay Sings the Year in Review...

It's time once again, boys & girls, for Uncle Jay to finish off the year in review and in tune too!

Christmas Weekend Open Thread...


Thursday, December 23, 2010

Morning Update/ Market Thread 12/23

Good Morning,

Equity futures are down slightly this morning before the open. The dollar is higher, the Euro looks sick, bonds are roughly even, oil continues to sit on the 50% retrace Fibonacci at $90.53 a barrel, and gold is down about $10 an ounce at $1,377.

Durable Goods orders came in at -1.3% in November, this is worse than the consensus that was looking for -1.0%, but it is better than the -3.3% in October. Here’s Econoday:
Today's durables report came in mixed but core orders may be back on an uptrend. Durables orders in November declined 1.3 percent, following a revised 3.1 percent drop the prior month. However, the latest was a little more negative than analysts' expectation for a 1.0 percent fall. Weakness was led by a drop in civilian aircraft orders. However, excluding transportation, new orders for durables rebounded 2.4 percent after a 1.9 percent contraction in October. Strength in core orders was broad based.

By major industries, transportation plunged a monthly 11.9 percent in November after falling 6.3percent the month before. The decline was mainly in nondefense aircraft which plummeted a monthly 53.1 percent-essentially Boeing orders. Also, within transportation, motor vehicles slipped 2.9 percent while defense aircraft & parts rebounded 7.9 percent.

Outside of transportation, strength was widespread, led by a 5.8 percent jump in computers & electronics, with electrical equipment up 5.6 percent and with primary metals up 3.0 percent. Also up were fabricated metals, machinery, and "other."

Business investment in equipment is showing signs of strength. Nondefense capital goods orders excluding aircraft in November rebounded 2.6 percent after falling 3.6 percent the prior month. Shipments for this series gained 1.0 percent, following a 1.2 percent contraction in October.

Outside of nondefense aircraft, today's report is notably positive. It looks like manufacturing is regaining some strength in the fourth quarter.

What’s so sad about this report to me is that Boeing represents such a large segment of the report! It means that our manufacturing base is narrow as we obviously make little here in the U.S. compared to what we used to make, especially in relation to the size of our population. Any way you want to slice it, the reality is that we are best at manufacturing paper money and derivatives.

Personal Income & Outlays are supposedly up .3% in November and up 3.8% year over year. Again, here’s a summary from Econoday:
While income growth slowed in November after a sizeable October boost, consumer spending was relatively healthy heading into the holiday shopping season. As in recent months, core inflation is quite soft and still below the Fed's target range. Personal income in November rose 0.3 percent, following a 0.4 percent boost in October. The market consensus had called for a 0.2 percent improvement. However, the wages & salaries component was sluggish, edging up 0.1 percent after jumping 0.5 percent in October.

The consumer continued to open up his wallet as in recent months. Personal consumption expenditures advanced 0.4 percent, following a 0.0.7 percent gain in October. For the latest month, strength was led by a 0.7 percent monthly surge in nondurables. Only about 0.2 percentage points was price related. Durables slipped back 0.1 percent while services increased 0.4 percent.

Chain-dollar PCEs rose 0.3 percent in November, following a 0.5 percent boost the month before, suggesting healthy PCEs growth for the fourth quarter.

Year on year, personal income for November posted a 3.8 percent gain, compared to 3.9 percent in October. PCEs growth edged up to 3.8 percent in from 3.7 percent in October.

On the inflation front, the PCE price index increased 0.1 percent in November, following a 0.2 percent rise the month before. The core rate nudged up 0.1 percent after no change in October. On a year-ago basis, the headline number in November was up 1.0 percent while the core was 0.8 percent.

While personal income growth has oscillated somewhat, consumers appear to be relatively confident about the economy as spending has been on a more stable uptrend. This is good news for fourth quarter growth and for moving forward.

Weekly Unemployment Claims came in at 420,000, which was exactly the same as the week prior and it was also right on consensus:
The job market is improving but only at a moderate pace. That's the indication from initial jobless claims which for a third time in a row held little changed, at 420,000 in the December 18 week. The four-week average ended six weeks of improvement, up 2,500 to a 426,000 level that's still about 10,000 lower than the month-ago comparison.

Continuing claims fell steeply, down 103,000 to 4.064 million in data for the December 11 week and knocking another tenth off the insured unemployment rate to 3.2 percent. The four-week average of 4.156 million is about 150,000 lower than the month-ago comparison.

Month-ago comparisons in this report point to a month-to-month increase, though only a moderate increase, for December payroll growth.

So, no change is an improvement? Everyone wants to spin the positive. CNN’s headline says, “Jobless Claims Fall Again.” Riiiight… since last week was revised higher once again, up 3,000 from the original report as happens every week, then this report can be said to look better – however compared to the initial report, this was exactly the same showing no improvement. In fact, when you remove seasonal adjustments, the number rose more than 5,000. Whatever, it’s ridiculously high and is an indication that the economy STILL is losing jobs.

Consumer Sentiment and New Home Sales are released later this morning.

Everywhere you look the spin is positive and the risk trade is obviously on. It seems way too one sided to me with most people now expecting inflation on the back of money pumping. Getting strong consensus in one direction is a sure way to produce the exact opposite. The holidays will soon be over and so will wave 5 up, but not right now. The McClellan Oscillator is positive again, and until it turns negative the recent Hindenburg will likely not deliver declines, however, keep it in mind as it remains in effect through April 15th.

Markets are closed tomorrow, I hope everyone enjoys time with your families and have a Merry Christmas!

Wednesday, December 22, 2010

Morning Update/ Market Thread 12/22

Good Morning,

Equities are higher this morning with bonds higher, the dollar higher, oil higher, and gold also higher.

Oil is pushing the $90.53 level which is a 50% retracement of the ’08 decline and thus is a very important level for oil – and for the economy:

The psychotic Mortgage Banker’s Association’s Purchase Applications Index fell another 2.5% in the past week with Refinancing activity falling a crazy 24.6%... in one week! That brought their overall index down by 18.6% - here’s Econoday:

The number of buyers filing mortgage applications fell 2.5 percent in the December 17 week, the second straight decline to show no significant improvement from a month ago. The report warns that home sales are likely to remain "relatively weak" over the next few months.

Some of the softness is tied to rising mortgage rates which are really cutting into refinancing volume. Refinancing applications fell 24.6 percent in the week and are back to levels last seen in April. The average 30-year rate was 4.85 percent in the week, up one basis point from the prior week and up 35 basis points from one month ago. Next data on the housing sector are existing home sales for November, to be posted at 10:00 a.m. ET.

Wow, if a one basis point rise in mortgage rates results in that type of drop, it’s going to get real interesting when rates finally normalize – and at some point they will.

The third and final revision to Q3 GDP data came in at 2.6%. This is a revision higher than the previous 2.5% trumped up report, but not anywhere near as high as expectations which were looking for 3.0%. It’s all false and all fraud, but here’s Econoday’s summary:
The economy got an upgrade this morning from the Commerce Department but it was notably below expectations. For the second month in a row, third quarter GDP growth was revised up, this time to 2.6 percent annualized from the prior estimate of 2.5 percent. Analysts had projected a 3.0 percent final estimate.

The upward revision was primarily due to a higher estimated for inventory investment with small improvements to net exports and residential investment also contributing. Softening the upgrade were downward estimates for personal consumption, nonresidential fixed investment, and government purchases.

The biggest disappointment of the report is that demand numbers were revised down. Final sales of domestic product were lowered to 0.9 percent from last month's estimate of 1.2 percent. Final sales to domestic purchasers were downgraded to 2.6 percent from the second estimate of 2.9 percent for the third quarter.

Absolute strength within final sales is still found in PCEs, revised down to an annualized 2.4 percent boost in the third quarter from the prior estimate of 2.8 percent. Investment in equipment & software gained 15.4 percent versus the previous third quarter estimate of 16.8 percent. Government purchases advanced 3.9 percent, compared to 4.0 percent for the prior third quarter figure. Absolute weakness was found in residential and nonresidential investment. Also, net exports worsened.

Year-on-year, real GDP in the second quarter is up 3.2 percent, compared 3.0 percent in the second quarter.

On the inflation front, the GDP price index's growth rate for the third quarter was nudged down to 2.1 percent annualized from the prior estimate of 2.3 percent. The consensus forecast was for 2.3 percent.

Probably the best thing you can say about today's report is that it reflects old data. The mix between final sales and inventories is not as good as expected. But more recent economic data have been far more upbeat. Most likely, the final figures for third quarter GDP will not have a significant impact on estimates for fourth quarter GDP.

On the news, equities eased but remained positive.

Again, our GDP is grossly overstated as it is based largely on financial engineering which itself is built upon fraud. I’m not talking a few percentage points either, I’m talking about a very sizable chunk of it.

I note that Bloomberg is running an article on it that states that the “Price Rise is Slowest in 50 years.” Again, that’s just flat out fraudulent – GDP benefits from low inflator numbers, it makes the economy appear stronger than it really is. So if they’re using the lowest deflator numbers of the past 50 years while everything but housing is soaring in price, then the gap between reality and the fantasy that is our government’s GDP number is gapping wider.

Existing Home Sales were expected to come in at 4.75 million for the month of November with October coming in at only 4.43 million. The actual report for November just came in at 4.68 million, slightly below expectations. The FHFA Price Index rose .7% in the month, but is down 3.4% year over year.

New Home Sales will be reported tomorrow along with a slew of other data, again markets will be closed on Friday.

Tuesday, December 21, 2010

Morning Update/ Market Thread 12/21

Good Morning,

Equity futures continue to drift higher this morning on extremely low volume. The dollar is down, bonds are up slightly, oil is again pressing $90 a barrel, and gold is down a little while food commodities continue to climb into the stratosphere.

Good thing that there’s plenty of money to placate one in seven Americans with food stamps. Otherwise there just might be hard enough times to cause an uprising that could stand a chance of brining meaningful change instead of meaningful money destruction:
1 in 7 Americans rely on food stamps

PICNEW YORK ( -- The use of food stamps has increased dramatically in the U.S., as the federal government ramps up basic assistance to meet the demands of an increasingly desperate population.

The number of food stamp recipients increased 16% over last year. This means that 14% of the population is now living on food stamps. That's about 43 million people, or about one out of every seven Americans.

In some states, like Tennessee, Mississippi, New Mexico and Oregon, one in five people are receiving food stamps. Washington, D.C. leads the nation, with 21.5% of the population on food stamps.

"The high unemployment rate caused the high participation rate," said Dottie Rosenbaum from the Center for Budget and Policy Priorities, a think tank.

But it's not just the nation's stubbornly high unemployment rate of 9.8% that's driving the increase in food stamp use. Some states are expanding their definitions of poverty to include more people.

At the same time, the 2009 American Recovery and Reinvestment Act boosted annual funding to the nationwide food stamp program, known as the Supplemental Nutrition Assistance Program, by $10 billion.

The average recipient receives $133 in food stamps per month, according to the U.S. Department of Agriculture. That amount varies from state to state; in Hawaii the average is $216, while it's $116 in Wisconsin.

But the Recovery Act funding increased the maximum food stamp benefit by 13.6%, which translates to about $20-24 dollars per person per month.

The U.S. government considers food stamps to be effective stimulus for the economy, because the recipients usually spend them right away.

And see, the media gets to tout that we “only” have 9.8% unemployment instead of the more than 17% or more that exists in reality. Sigh…

Not to worry because the “Fed” in all their glorious wisdom will continue to kill the value of your money by not only buying up every single piece of worthless debt in America, but they will provide “liquidity” in the form of “Swap lines” with the world’s other central banks so that they too can keep the dollar killing money pump going:
Dec. 21 (Bloomberg) -- The Federal Open Market Committee authorized the extension through Aug. 1 of its temporary dollar liquidity swap arrangements with the European Central Bank and the central banks of Japan, Canada, Switzerland and the United Kingdom.

The arrangements, established in May, had been authorized through January, the Federal Reserve said today in a statement.

One world government? Seems we already have one and Bernanke is the figurehead world President. Don’t worry about the debt in Europe though, we have that covered because Americans can afford it.

No economic data today, just POMO after POMO. There will be two POMO’s today, should be more than $10 billion plus. Isn’t that special? Why I’ll bet you’re feeling more wealthy already.

Meanwhile stocks appear to me to be carving out another potential rising wedge pattern in the short term…

…That’s inside of another rising wedge pattern in the longer term:

I hope you’re enjoying time with your families in front of the holidays, don’t follow the debt example of our national leaders and be sure to teach your children well…

Monday, December 20, 2010

Morning Update/ Market Thread 12/20

Good Morning,

Equity futures are up this morning as the buildup of tension on the Korean Peninsula with ongoing military exercises has fortunately so far not resulted in another spat of violence. The dollar is unchanged, bonds are higher, oil is flat, and gold is higher.

Expect light volumes and tons of POMO money this shortened holiday week, a week that is traditionally bullish – pour tens of billions onto the fire and you can see food commodities, oil, and momentum stocks all moving straight up in a ridiculous and reckless manner. Sentiment is far too bullish with most measurements near historic bullish levels, stochastic indicators are overbought on all timeframes through monthly, insider selling is still extreme as it appears that distribution is occurring in a wave 5 movement, and the VIX closed on Friday at the lowest level since last April which also shows that complacency is mounting:

The Chicago "Fed" National Activity Index fell further in the month of November, falling from -.28 to -.46. This negative report fails to backup other “growth” indicators that are being fluffed up by monetization and manipulation. Here’s a quick Econoday summary:
The Chicago Fed's national activity index slipped to minus 0.46 from October's minus 0.25 (minus 0.28 first reported). Three of four components fell in November including employment. The three-month moving average improved slightly to minus 0.41 yet still suggests that U.S. growth is below historical trend. Inflation indications point to subdued pressure over the coming year.

Gee, I guess we need to pump the POMO a little harder, eh?

Very little economic data is reported through tomorrow, then we’ll get the 3rd and final trumped up rendition of Q3 GDP, Existing Home Sales, then Durable Goods and New Home Sales on Thursday. All markets are closed on Friday but banks will be open.


With the Private banks running the country, the money pumping will continue as in their eyes inflation must occur for their “business” model to work. This monetization is slowly eroding confidence in our money and it is already dramatically affecting the major asset classes which are; DEBT, equities, real estate, and commodities. The dollar is at the center of the wheel as all these “assets” are priced in dollars:

So, commodities are already too high, debt is already far too high, real estate is a bubble that has already burst, and equities are at extreme real valuations manipulated higher by “Fed” intervention and flat out accounting fraud. As the money pumping continues through 2011, I think that we will see one or more of these “asset” categories exhibit extreme moves under extreme stress.

Which ones and in which direction? Again, I’m not a decision maker in this regard and you likely aren’t either… thus attempting to guess is an attempt to guess the actions of others who are in a position of power. For example, we all know that Bernanke is going to monetize come hell or high water, but yet even he could be put under pressure by other decision makers eventually, and thus it makes betting on any single outcome seem foolish to me.

Should he continue to print unfettered and the current trend of higher commodities continue, then you will see dramatic margin compression for businesses and for the cost of living. There is no free ride, one of these asset categories will give way… you can have higher equities, but the tradeoff might be that you force either the dollar lower, or you force the interest rates for debt higher (or both). So, I think we see wild swings and more volatility in reaction to the pumping and we are also getting closer to those “other events” that history shows appear within a decade of the beginning of the bursting of a credit bubble. This one began bursting in 2007, and thus it is very likely that significant “other events” occur before the year 2017 is over.

Friday, December 17, 2010

Open Weekend Thread...

Morning Update/ Market Thread 12/17

Good Morning,

Stocks are roughly flat at the open this morning, the dollar is up as Moody’s downgrades Ireland’s debt once again, bonds are higher, and both oil and gold are up slightly. Today is Quadruple Witching day, expect heavier volume.

Speaking of heavy volume, massive volumes of Visa and Mastercard sold off as the “Federal Reserve” proposed new rules that would dramatically limit the amount of processing fees they can charge on debit transactions. Shares of both fell by approximately 10% and the selling continues this morning:

While I wholeheartedly support limited fees in what amounts to a duopoly, I would rather have unfettered competition and I also question the “Feds” ability to propose and to implement such a rule on entities which are not banks under its jurisdiction. Of course Congress has simply turned over the economy to the private banks (“Fed”), so I guess it’s just business as usual for the “Fed” to dictate terms to everyone else. Still, this should help smaller businesses and consumers:
Visa, MasterCard sink on debit card fee cap plan

NEW YORK ( -- The Federal Reserve rolled out a proposed rule Thursday that caps the fees banks can charge retailers when customers swipe their debit cards.

The rules would likely hurt credit card network companies Visa and MasterCard the most. Shares of Visa closed nearly 13% lower following the news, while shares of MasterCard (MA, Fortune 500) slipped more than 10%.

Under the proposal, merchants would be charged no more than 12 cents per debit-card transaction, the Federal Reserve Board said at a meeting Thursday.

Mandated by the Dodd-Frank Wall Street reform act and part of a measure introduced by Senator Richard Durbin (D-Ill.), the fee cap aims to make "swipe" fees -- also known as interchange fees -- "reasonable and proportional" to what it actually costs banks and issuers to authorize, clear and settle transactions.

The rule is open for public comment until Feb. 22. After the comment period ends, the Fed will consider recommendations and make revisions if necessary.

Along with the main issuers MasterCard and Visa, profits for big banks are also likely to suffer under the new rule.

With average interchange fees currently running from $1 to $1.30, the 12-cent cap will cut these charges by up to 90%, JPMorgan analyst Tien-tsin Huang wrote in a note to clients.

Moshe Katri, an analyst at Cowen and Co., said Wall Street had been expecting a 50% cut.

Bank of America (BAC, Fortune 500), one of the nation's largest issuers of credit cards, estimated in July that a cap on interchange fees could drain $1.8 billion to $2.3 billion from its annual debit card revenue.
"The rules proposed by the Federal Reserve today will have a dramatic impact on the cost of banking services for consumers nationwide," the American Bankers Association said in a statement. "They essentially relieve retailers of paying their fair share for a card payments system that offers them tremendous benefits."

In its meeting, the Fed acknowledged that the rule could impact debit card use, by leading issuers to eliminate rewards programs for debit cards or encourage consumers to use other forms of payment.
But the Merchants Payments Coalition said the cap is much needed, given that swipe fees have tripled since 2001, costing retailers more than $48 billion last year alone.

"For years, big banks and credit card networks have used hidden fees and fine print to keep consumers and merchants in the dark, setting rules and raising fees with impunity," the coalition said in a statement. "Reining in these out-of-control fees will bring savings to small business and consumers struggling to make ends meet."

It would be a win for consumers because the lower costs for retailers could result in savings for customers.

"The proposed regulations will benefit consumers by lowering the billions of dollars annually in non-negotiable swipe fees paid by merchants to large banks and the dominant credit card networks," Ed Mierzwinski of the U.S. Federation of Public Interest Research Groups said in a statement. "Lower swipe fees mean lower prices at the checkout counter."

That is a very sizable cut in fees and if implemented will greatly impact Visa and MC’s bottom lines.

The largest owner of the “Fed” is JPMorgan. If you pay attention, you will find that not only is JPM the world’s largest holder of derivatives, but they are also the ones who are always in some way connected with unethical market manipulation such as silver and oil manipulation (all markets really), they were Madoff’s banker yet didn’t expose him (because of big profits), and now we are learning more details about an ex-JPM banker who is involved in municipal bond market price rigging:
Ex-JPMorgan Banker Says Minnesota Broker Helped Him Rig Bids

Dec. 17 (Bloomberg) -- A former JPMorgan Chase & Co. banker who conspired to fix prices on municipal-bond investment contracts said he was aided by a Minnesota company that ran auctions for the deals on behalf of public agencies.

James Hertz, 53, who admitted fraud and conspiracy charges, said Sound Capital Management Inc., an Eden Prairie-based financial adviser to local governments, told him what a competitor bid so he could adjust his offer and win the deal, according to a transcript of his plea hearing Nov. 30. The charges say Hertz received tips about other bids from “Broker E,” an unidentified Minnesota firm.

Bigger Profit
Hertz testified that information from Sound Capital boosted JPMorgan’s earnings on the transaction.

“This resulted in JPMorgan Chase being awarded the contract at an increased profit,” he said during his court appearance.

And there you have it – yet another example of market rigging profiting JPM at everyone else’s expense. It is clear that JPM and the other banks that comprise the “Fed” have a serious issue with morals and ethics. They have grown far to powerful, the big banks and the “Fed” need to be broken up now.

While Moody’s is downgrading Ireland, S&P had threatened that should we extend the Bush era tax cuts that our mounting deficits could jeopardize our joke of a triple-A rating. Yet it appears that we are going to do exactly that, yet Congress can’t even pass an authorization to lift the cap on the deficit spending that’s required. All I can say is that the math doesn’t work in any way, shape, or form and that we are absolutely bankrupt as a nation. Money printing will fail to help the economy, it will only hurt it in the long run.

Meanwhile McHugh brought up an interesting point about the now confirmed Hindenburg Omen. He noted that there was wide media attention covering the last one in August, but that there has been no mention of this current one. That is interesting – it seems the last one got a lot of attention because the one prior led to the ’08 crash. Can we only remember as far back as the last one? Well, the one in August may not have led to a major decline, but I would be cautious betting that two in a row will not. Of course market participants (HFT owners) believe that the “Fed” has their back and thus they cannot lose. Oh yeah, just like Visa and MC.

I still think the markets are vastly overvalued – “earnings” are based only upon accounting fraud and any supposed economic growth that’s occurring is also based upon the same accounting fraud coupled with a devaluation of our money. Measure things in money that’s going down and you will have APPARENT growth. Real growth is another matter entirely. Mark the bank’s asset to market and you will have a market that is worth far, far less than today’s value. This true valuation will eventually assert itself given time.

Thursday, December 16, 2010

Morning Update/ Market Thread 12/16

Good Morning,

Equity futures are roughly flat just prior to the open, the dollar is down, bonds are flat, oil is higher, and gold is lower.

Yesterday’s action did produce a second Hindenburg Omen and thus we now have a fresh new confirmed Hindenburg on the clock that is valid through Tax Day on April 15th. A Hindenburg has preceded ALL modern stock market crashes, the odds of a crash being a little more than 25%, but the odds of a significant decline are much higher.

While equities are struggling, the bond market has been really on the move with rates rising rapidly. The TNX (10 year) has risen from 2.35% to 3.51% in just the past two months.

While a 1.2% rise may not sound like much, it represents a 50% increase! Fixed rate housing mortgages are tied to the ten year and eventually they will have to rise to cover this increased borrowing cost. But rates are not just rising there, in the municipal bond market there is a blood bath occurring with rates rising significantly which brings down the value of the bonds. Many states and municipalities are struggling – here in Washington State we are facing a $4.2 billion shortfall, the Governor just released the upcoming budget and it contains severe cuts, but there is simply no way they can cover that entire amount without radically cutting back government. One of the State’s measures includes pay cuts for 90% of the State’s employees.

Just a reminder that there is a huge wave of Option Arm mortgages resetting next year - actually the wave has already begun but will peak by the end of 2011. This will further pressure upper end housing, the banks, and the government:

Housing Starts came in at another depression era print of 555,000. This is up from 519k, but it is on consensus and is one of the lowest prints in modern history:
Housing starts posted a nice comeback in November but off of a very weak level. Housing starts in November rebounded 3.9 percent, following a sharp 11.1 percent drop the prior month. The November annualized pace of 0.555 million units came in a little above the market median estimate for 0.550 million units and is down 5.8 percent on a year-ago basis. The gain in November was led by a monthly 6.9 percent boost in single-family starts, following a 2.7 percent dip the month before. The multifamily component actually pulled down on the overall number, falling 9.1 percent after plunging 35.7 percent in October.

By region, the November improvement in starts was led by a 15.8 percent increase for the Midwest with gains also seen in the South and West, up 2.3 percent and 2.1 percent, respectively. The Northeast dipped 2.5 percent.

Permits, however, fell back 4.0 percent in November after edging up 0.9 percent in October. Overall permits came in at an annualized rate of 0.530 million units and are down 14.7 percent on a year-ago basis. The latest decline was led by the multifamily component which was down a hefty 23.0 percent while single-family permits improved 3.0 percent.

Basically, housing is not getting worse-but there is not much improvement either. Looking ahead, not much can be read into the dip in housing permits as the multifamily component is lumpy and volatile on a monthly basis. Until home sales pick up along with household formation (which depends on job growth), starts are going to remain sluggish. But again, the good news is that at least housing appears to have stabilized.

Stabilized? LOL, it can’t get any worse once you’ve gone splat on the bottom. Same goes for Jobless claims where it’s been years now of job losses. This week’s number came in at 420,000 which is stubbornly above the 350k mark, which again shows that the economy continues to lose jobs versus make them – here’s Econoday:
Jobless claims improved slightly to an as-expected level of 420,000 in the December 11 week. This extends a run of improvement evidenced by the four-week average which has fallen for six weeks in a row. The average, at 422,750, is down more than 20,000 from a month ago in what is a positive signal for payroll growth. The four-week average for continuing claims, at 4.186 million, has been falling at 150,000 to 200,000 month-to-month clips to also signal payroll strength.

Note this is a tricky time of year for adjustments and the Bureau of Labor Statistics warns that unadjusted claims will, starting next week, begin to build to an annual peak in the second week of January. Still, claims data continue to signal improvement in the labor market.

First, note that the prior week’s numbers were revised higher by 7,000, and then also not mentioned is that with yet another extension of Emergency benefits (keep the revolution down), there were an additional 143,000 people added to this program in just the past week, although the number of people drawing emergency benefits has been slowly diminishing as many people have been on it so long that they simply fall off the back end and are no longer counted.

The Philly Fed Index came in higher at 24.3 versus November’s print of 22.5. This still shows supposed expansion, but most of recent expansion has been largely due to inventory building, and there are signs of margin compression within this report as input costs are soaring.

The Fed’s balance sheet will be released later today and tomorrow will be the supposed Leading Indicators. Don’t forget that tomorrow is Options Expiration.

Events in Europe have obviously not gone away. China may be on the verge of raising interest rates. North Korea is conducting more military exercises, and all I hear from the pundits regarding stocks and the economy is that there will be no double dip. Extreme bullishness while at the same time there were 89 new 52 week lows in the market that is supposedly roaring. That type of internal discord says that the market, despite being propped up with billions and billions every single day, is getting tired internally.

Wednesday, December 15, 2010

Morning Update/ Market Thread 12/15

Good Morning,

Equity futures are lower this morning prior to the open with the dollar up, bonds up slightly, oil down, and gold down.

Yesterday’s price action looks contrived to me. The tape is definitely being painted by the players who own the HFT machines, the dark pools, the exchanges, the politicians, everything… of course I’m talking about the central banks – the “Fed.” With most of the market struggling to maintain flat, the DOW Industrials manage to pop up and close at a higher high than November’s to confirm DOW theory. All I can say is that it is most unusual to have a confirmation on a day when all the other indices are struggling. If it quacks like a duck, it’s a duck – contrived.

But in the process of manipulating technical data, the market showed internal stress by producing 113 new lows while also producing 179 new highs. With the McClellan Oscillator negative, this did produce another Hindenburg Observation. We need one more in order to get a cluster and to make the Observation official. Obviously the last cluster did not produce a meaningful decline, but the odds go way up that a meaningful decline is near when Hindenburgs begin to appear. Interesting that this is occurring very near the end of the effective window of the previous cluster. What it says is that the market is unhealthy – there are too many stocks in downtrends and making new yearly lows to support the current price level.

The still hypocritical Mortgage Banker’s Association released its still worthless Purchase Applications Index which fell 5% in the past week, with the Refinancing Index falling .7% - here’s Econoday:
The jump in mortgage rates, now at their highest levels in six months, is crimping demand for mortgage applications, according to the Mortgage Bankers Association. MBA's purchase index fell 5.0 percent and its refinancing index fell 0.7 percent. The MBA describes the drop in purchase applications, the first in three weeks, as "sharp" though the level is still near six months highs. The average 30-year mortgage jumped 16 basis points to 4.84 percent. The housing market index will be posted today at 10:00 ET.

While these Indexes may be near six month highs, they are also in the gutter near all-time historic lows. Rising interest rates will punish the home market as debt saturated consumers cannot buy still bubble priced homes with higher interest rates. Thus something must give as rates rise, and that thing in this case is price which still has quite some way to fall to restore traditional relationships between income and debt.

The CPI, another phony statistic, came in at .1% month over month – more tame than yesterday’s PPI report. Remember that PPI leads, CPI follows:
The CPI was a little tamer than expected for November as food and energy were not as strong as feared and prices were pervasively soft elsewhere. The overall CPI in November rose a modest 0.1 percent, following a 0.2 percent increase in October. Economists had expected a 0.2 percent rise for November. Excluding food and energy, CPI inflation firmed to up 0.1 percent from no change the month before. The median market forecast called for a 0.1 percent core rise for the latest month.

By major components, energy increased only 0.2 percent, following a 2.6 percent surge in October. Most of the November rise was from fuel oil which jumped 4.2 percent. Gasoline was up 0.7 percent while electricity rose 0.9 percent. Damping these was a 5.7 percent drop in natural gas. Food price inflation increased 0.2 percent after a 0.1 percent rise the prior month.

For the 0.1 percent gain in the core, increases in the indexes for shelter and airline fares accounted for most of the rise, while the indexes for new vehicles, used cars and trucks, and household furnishings and operations all declined. Softness was widespread within major expenditure components.

Year-on-year, overall CPI inflation rose to 1.1 (seasonally adjusted), down from 1.2 percent in November. The core rate in firmed to 0.7 percent from 0.6 percent in October. On an unadjusted year-ago basis, the headline number was up 1.1 percent in November while the core was up 0.8 percent.

The bottom line is that inflation at the consumer level is still quite subdued despite inflation pressure beginning to rise at the producer level and already high for commodities. The November CPI allows or rather calls for the Fed to continue with balance sheet expansion.

On the news, Treasury rates eased with a higher than expected Empire State manufacturing number partially offsetting. Equity futures are down moderately, largely over worries about European sovereign debt.

Any inflation is not sustainable for a money system over any longer length of time. Our CPI is dramatically underestimating Consumer Inflation which is skyrocketing while at the same time there has been deflation in things those same consumers hold as assets. It’s the worst of both worlds, with assets prices falling (except a temporarily trumped up stock market), while the cost of living jumps due to the intentional destruction of the value of our money.

The Empire State Manufacturing Index came in better than expected at +10.6. Here Econoday actually points to the weakness in this report:
A solid headline masks softness in the Empire State manufacturing report for December. The index on general business conditions, which is a subjective assessment by respondents, rose to 10.57 to indicate meaningful month-to-month expansion vs October's minus 11.14 which indicated meaningful contraction. The report otherwise shows mild contraction in employment, significant contraction in unfilled orders and little better than a flat month-to-month reading of 2.60 for new orders which contracted severely in October.

Shipments are a plus showing meaningful month-to-month growth at 7.11 and reversing comparable contraction in the prior month. Another plus is a big draw in inventories pointing to inventory rebuilding which is a plus for the production and employment outlooks.

This report, especially the flat new orders reading, sends an uncertain signal for Thursday's Philadelphia Federal Reserve data for December.

The TIC Data for October came in barely net positive at +$7.5 billion. This data from the Treasury has also become unreliable due to all the quantitative easing and swaps that are occurring between central banks. The numbers don’t add up for me, my suspicion is that the Treasury is coving their tracks and that real International flows are quite negative. Without unfettered access to the central bank’s books, we simply cannot know for sure. Again, WHO controls the production of money is so important and we have let the Private banks subvert and take control of the entire system. The Treasury is the one agency that is supposed to be independent and is still a government agency. Yet we let the likes of former GS CEO Hank Paulson in to run it. This is a huge problem and once we got yet another taste of that problem yesterday:
Dec. 15 (Bloomberg) -- Theo Lubke, who headed the Federal Reserve Bank of New York’s efforts to reform the private derivatives market, joined Goldman Sachs Group Inc. to help Wall Street’s most profitable firm navigate the looming overhaul of financial regulations.

Lubke, 44, started this month as chief regulatory reform officer in Goldman Sachs’ securities division, according to a memo obtained by Bloomberg News. The newly-created role will allow Lubke to “work closely with divisional and firm-wide leadership to implement regulatory reform legislation,” the memo said.

Goldman Sachs is hiring Lubke five months after Congress mandated the regulation of the $583 trillion over-the-counter derivatives market, which complicated efforts to resolve the financial crisis. The reforms threaten to cut profits at dealers because they will make swaps prices known to the public. Lubke’s new firm employs a former New York Fed president and has an ex- Fed board chairman as a director. The current president of the New York Fed, William Dudley, also worked there.

“It’s a pattern,” said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, who has written about Wall Street’s history. “It’s troublesome stuff and there needs to be some regulation so people don’t do it and undermine public policy.”

This absolutely should be illegal. There needs to be a duration of time both coming and going into these positions. Now Lubke will take all his government knowledge and contacts with him into Goldman Sachs. Don’t be shocked to watch him climb the ladder inside of GS, and then later return to head the Treasury. Talk about corrupt… you can’t even call it corrupt since the government and the banks are now quite literally one in the same. All decisions are made on their behalf, the people of this country are simply labor units to feed this entanglement of private banks and “government.”

Industrial Production came in on consensus at .4% growth over the month of November. Again, I remind everyone that most of these figures are first measured in dollars, then converted into index values, and since the value of our money is being destroyed, manufacturing and services may APPEAR to be expanding, when in fact what is actually happening is that the value of the money is being destroyed. Here’s Econoday:
Headline production improved on a rebound in utilities output. Also, manufacturing was stronger than expected. Overall production improved in November, rising 0.4 percent, following a revised 0.2 percent dip the month before (originally no change). The November rise equaled the consensus forecast for a 0.4 percent increase.

By major components, manufacturing gained 0.3 percent, matching the boost in October. For other major industry groups, utilities output rebounded 1.9 percent after dropping 3.7 percent in October. Mining edged down 0.1 percent, following a 0.2 percent decline the month before.

Within manufacturing, gains were broad based. The output of durable goods rose 0.4 percent, and with the exceptions of nonmetallic mineral products and motor vehicles and parts, output advanced in all of the major industries. The production of nondurable goods rose 0.2 percent.

On a year-on-year basis, overall industrial production edged down to 5.4 percent from 5.5 percent in October.

Capacity utilization firmed to 75.2 percent in November from 74.9 percent in October and topping market expectations for 75.1 percent. Capacity utilization is at its highest since a reading of 75.4 for October 2008.

The good news is that manufacturing is a little stronger than hinted at by production worker hours. There are at least two positives from this. Manufacturers still see demand as reasonably strong and productivity appears to be healthy. However, today's Empire State survey for December was a little more sluggish but New Year State is not necessarily representative of U.S. manufacturing.

The Housing Market Index is released at 10 Eastern this morning.

Stocks still appear to be struggling inside of wave 5 higher. The Hindenburg reappearance is very significant, betting against them is not wise. One all by itself does produce higher odds of a decline, but two significantly increases those odds. We know that the big players propped up by the Fed have been able to control the markets and send them higher despite 30 months of continuous real people’s money outflows. A bet long this market requires you to believe that the Fed will eventually be the sole owner of corporate stock in America. Really?

Tuesday, December 14, 2010

Market Thread 12/14

Good Morning,

I'll be out today but will be back for an update tomorrow morning. Please keep one another up to date on market and economic news, thank you!

Monday, December 13, 2010

Morning Update/ Market Thread 12/13

Good Morning,

Yet another manic Monday HFT, POMO fueled, bond aversion, ramp job with equities higher, the dollar plummeting, bonds falling, oil reaching for $90 a barrel again, and gold at what was a formerly tinfoil $1,400 an ounce.

No economic data today, but it will be a relatively busy week with an FOMC meeting (announced tomorrow at 2:15 Eastern), Quadriple witching on Friday, PPI, CPI, Industrial Production, Housing Starts, Philly Fed, and the week will finish with “Leading Indicators” on Friday.

Here are the stories that have me heated from this weekend, the first is particularly galling and tells you everything you need to know about how the banks have subverted the markets, how there are no adults to police the market players, and thus the conclusion is that for this to happen those same players who collude and meet in secret have subverted the political process as well:

A Secretive Banking Elite Rules Trading in Derivatives

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk.

In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks.

The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available.

These people meet just before Opex each month to collude, price fix, and to rig the markets – yet since it is the big banks that are involved no police show up because this is the modern day super-mob. You can read more at the link to find examples of how this is costing American citizens more for things like heating oil.

Is there any wonder that those same banks saw record revenue over the past two years post bailout?
Wall Street Sees Record Revenue in ’09-10 Recovery From Bailout

Dec. 13 (Bloomberg) -- Wall Street’s biggest banks, rebounding after a government bailout, are set to complete their best two years in investment banking and trading, buoyed by 2010 results likely to be the second-highest ever.

The five largest U.S. firms by investment-banking and trading revenue -- Goldman Sachs Group Inc., JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Morgan Stanley -- will likely have a better fourth quarter than the previous two periods, driven by equity underwriting and higher volume in stock and bond trading, according to data compiled by Bloomberg. Even if this quarter only matches the third, the banks’ revenue will top that of any year except 2009.

The surge has come after the five banks took a combined $135 billion from the Treasury Department’s Troubled Asset Relief Program and borrowed billions more from the Federal Reserve’s emergency-lending facilities in late 2008 and early 2009 following the collapse of Lehman Brothers Holdings Inc. Since then, the firms have benefited from low interest rates and the Fed’s purchases of fixed-income securities.

From the biggest losers to the biggest winners all on the backs of the American people who continue to get the $90 a barrel shaft.

The media will report that 70% of Americans favor banning Wall Street bonuses for some duration, but this is simply a distraction to the CRIMES that are taking place:

Banning Big Wall Street Bonuses Favored by 70% of Americans

Dec. 13 (Bloomberg) -- More than 70 percent of Americans say big bonuses should be banned this year at Wall Street firms that took taxpayer bailouts, a Bloomberg National Poll shows.

An additional one in six favors slapping a 50 percent tax on bonuses exceeding $400,000. Just 7 percent of U.S. adults say bonuses are an appropriate incentive reflecting Wall Street’s return to financial health.

A large majority also want to tax Wall Street profits to reduce the federal budget deficit. A levy on financial services firms is the top choice among more than a dozen deficit-cutting options presented to respondents.

With U.S. unemployment at 9.8 percent, resentment of bonuses and banking profits unites Americans across political, gender, age and income groups. Among Republicans, who generally are skeptical of business regulation, 76 percent support a government ban on big bonuses to bailout recipients, that’s higher than backing among Democrats or independents.

Damn bonuses! Are you distracted yet? Forget the bonuses, these gangsters are robbing us blind, saturating our nation with debt, colluding, price fixing, rigging markets, blackmailing politicians, and in general destroying any remaining notions of free enterprise.

Don’t worry about that pesky little $150 billion record deficit for November, the math can continue to grow forever, no worries, just buy the freakin’ dip.

Oh, and as you buy pay no mind to those pernicious bearish divergences that can be seen across all timeframes, which by the way, are all overbought – from 15 minutes all the way up to the monthly timeframe. When the stochastics are all positioned like that, as they are now, then the odds of a significant correction are very high and growing.

Below is a 6 month daily chart of the SPX showing what appears to be a rising wedge confining the rising price of wave 5 up. It also clearly shows a large bearish RSI divergence with lower RSI readings versus higher price:

The weekly and monthly charts also show this divergence which has been in place for quite some time – months. The other potentially serious divergence in place now is that the DOW Industrials have yet to make a new high above the November peak while the Transports and SPX have.

Bonds are beginning to show a positive divergence, meaning that the rise in rates may be reaching a turning point soon. The aversion to debt is completely justified, of course, in the face of out-of-control printing around the world and a bubble to end all bubbles in DEBT.

The VIX and other sentiment indicators like the put/call are reaching levels that indicate extreme investor complacency. The VIX is opening this morning at the bottom of its recent range, while the CBOE total put/call is at a low that I’ve never seen before, lower by far than at any point in the past 3 years at just .28:

Those types of extremes correlate very well to tops – have a Happy Holiday Season (take two Prozac, close your eyes, turn off your brain, keep buying stocks, and hurry to buy cheap stuff from China before the music stops)!

Saturday, December 11, 2010

Weekend Open Thread...

Friday, December 10, 2010

Morning Update/ Market Thread 12/10

Good Morning,

I’m still getting caught up and am working from secondary computers, so I’ll keep this short and be back to normal posts on and off next week.

Equity markets are higher this morning, bonds are lower despite being below the lower Bollinger (interest rates higher), the dollar is higher, oil is about even, and gold is lower.

Not much has changed, obviously, from last week. The push to extend the Bush Tax cuts is not turning out to be the done deal that the markets assumed earlier this week. Should those cuts not be extended it would be negative for the markets in the short run, and should they be extended it will be negative for our deficits and thus negative in the long run. You can’t fool Mother Nature or mathematics.

Of course there’s been no real cure for Europe either. That’s because the central banks want to “cure” a debt problem with more debt – just debt of a different flavor. That will never work and is laughable not only because it’s like watching a child stand on a roof flapping his arms thinking he can fly, but mainly it’s ridiculous that the people still haven’t thrown the bankers out on their collective rears. Did I mention that the Euro is going to fail in its present form? It already has… Same goes for the dollar, same goes for the Yen.

Interest rates have shot higher over the past couple of weeks with the ten year rising from 2.3% in October to just a fraction under 3.3% today. That’s a very sizable move, and when you think about it, it means that the cost of borrowing in that time frame, which mortgage rates are tied to, just rose by a whopping 43%! What’ll happen to the housing market once higher rates shift into the market? Nothing good.

And speaking of nothing good, that’s pretty much what Bank of America is up to… let’s all pretend that the paperwork is legal and that the systems have been fixed… what a joke. Again, there are no adults, our regulators and political system are failing us in letting the banks walk all over state law as well as the people of the United States:
NEW YORK ( -- Bank of America said Friday it was ending its hiatus on foreclosure sales, and promised to get its act together after a series of sloppy home seizures prompted the bank to back off and re-examine its process.

"We have identified areas of our process that can be improved and while we make these improvements, it's important that we move ahead with efforts to reduce the number of abandoned properties across the country," said Barbara Desoer, president of Bank of America (BAC, Fortune 500) Home Loans, in a statement. "The properties can drag home values in neighborhoods and slow the eventual recovery of the housing market."

The bank said it plans to proceed with 16,000 foreclosures this month, though it will observe a "holiday suspension" of sales and evictions from Dec. 20 to Jan. 2. Freddie Mac (FMCC) and Fannie Mae (FNMA) have announced a similar holiday freeze.

It’s not that foreclosures are necessarily a bad thing, the housing market does need to clear, but simple fairness dictates that if people can fail and be forced out of their homes, then banks should also be allowed to fail and be kicked out of their homes! This is no small point, this is all about one of those pesky natural laws – when the people see the rule of law being applied inconsistently then eventually those abusing will pay the price. The problem with foreclosures currently is the legality of the way in which they are proceeding and how the rule of law has been subverted beginning with the creation of MERS.

Meanwhile the central banks have created massive bubbles in everything, not just housing. Now China is still attempting to cool their bubble:
Dec. 10 (Bloomberg) -- China ordered lenders to park more money with the central bank for the third time in five weeks to counter the threat from inflation after November’s lending and trade surplus topped analysts’ estimates.

Reserve requirements will increase 50 basis points starting Dec. 20, the People’s Bank of China said on its website today.

Policy makers refrained from adding to October’s interest- rate increase, ahead of data tomorrow that may show inflation accelerated to the fastest pace since July 2008. The People’s Bank of China has lagged behind counterparts from Malaysia to South Korea and Taiwan that boosted rates earlier in the year as capital flowed into the region leading the global recovery.

An interest-rate increase would be “a more potent weapon” and is likely this weekend, said Shen Jianguang, a Hong Kong- based economist at Mizuho Securities Asia Ltd.

Higher interest rates soon? The holders of debt are already reading this and moving – this is very significant to the markets and to the way in which capital moves.

Our International Trade Balance declined to “only” -$38.7 Billion in October. That is down from -$44 billion and below consensus. Of course Econoday never met a report they didn’t think was positive, and this is long term positive, but a contracting trade deficit for us means that the credit bubble is likely contracting and overall means an economy that is still pulling in. Keep in mind that when we talk trade, it is measured in DOLLARS, and thus reading import and export statistics and thinking, like Econoday and most economists, that goods and services are actually increasing or decreasing is a big mistake as what is likely a bigger mover of these numbers is the changing value of the currencies in which they are measured:
It is good news all around. The deficit is down as exports are up, oil imports are down, and nonoil imports rebounded moderately. The overall U.S. trade deficit in October shrank to $38.7 billion from a revised $44.6 billion shortfall the month before. The October gap was less negative than analysts' projection for a $44.0 billion deficit. Exports improved, jumping 3.2 percent, following a 0.5 percent rise in September. Imports declined 0.5 percent after slipping 0.7 percent the prior month.

The narrowing of the trade gap was primarily in the petroleum gap which dropped to $19.1 billion from 21.7 billion in September. On the boost in exports, the nonpetroleum shortfall also shrank-to $31.0 billion from $34.1 billion the prior month.

Nonoil goods imports in October rebounded 0.4 percent, following a 1.2 percent decrease the previous month. The comeback suggests businesses are expecting the consumer sector to remain relatively healthy.

By end-use categories, the increase in goods exports was broad based but was led by a $2.6 billion boost in industrial supplies with foods, feeds & beverages up $0.7 billion. Also rising were automotive, up $0.4 billion; capital goods ex autos, up $0.4 billion; and consumer goods, up $0.1 billion. The capital goods number was held back by a $0.4 billion drop in civilian aircraft exports.

The decrease in goods imports was led by a $1.7 billion drop in industrial supplies with the crude oil subcomponent down $2.3 billion. Also declining were capital goods ex autos, down $0.9 billion, and foods, feeds & beverages, down $0.1 billion. Consumer goods imports rebounded $1.3 billion. Automotive imports were flat.

The latest trade report is good news for manufacturers. Demand overseas is holding up nicely. And businesses may be giving the consumer sector an upgrade and vote of confidence with the rebound in imports of consumer goods. Businesses apparently expected these goods to not sit on stockroom shelves.

On the news, markets were little changed as equity futures remained up moderately.

Yes, a lowering trade deficit is good in the long run, but this report is not a good short term read on the economy. Oil, for example, is measured in dollars, not in barrels when counted as an import. Well, oil during the month of October was pretty steady, rising from $79 a barrel to $81. Thus, if the price of oil went up, but imports fell, what does that tell us about demand? Demand isn’t necessarily holding up, it only appears that way because you’re measuring things that have become more expensive priced in dollars! This report tells you exactly NOTHING about the real number of goods and services sold, especially when your measurement of inflation is broken.

And in this report you will find exactly what we are actually importing and exporting, it’s called Inflation! For the month of November, Export prices jumped 1.5%... in one month! And that’s by our broken measurements, what was it in reality? Year over year Export prices are up a whopping 6.5%! That’s the kind of math that can get away from you in a hurry, those numbers are far too big to be sustainable. Import prices also rose, up 1.3% in the month – here’s Econospin:
Import & export prices jumped sharply in November, pointing to pressure for next week's producer and consumer price reports. The headline import price increase of 1.3 percent is the largest since November last year. Pressure is centered in oil-related products with petroleum products up 4.1 percent in the month. Import prices for industrial supplies jumped 3.2 percent on top of a 3.0 percent jump in October. Excluding petroleum in the industrial supplies component, import prices rose 2.2 percent and show a third straight rise, at 2.8 percent, for durable products. Some of this pressure is appearing in finished goods, at least for consumer goods where import prices rose 0.3 percent, a gain offset in part by the prior month's 0.5 percent decline. Country data show price pressure coming from especially Latin America and Canada.

Higher food prices also pressured import prices and are the central source of pressure for export prices. Export prices jumped a very sharp 1.5 percent for the largest increase since July 2008. Export prices for foods/feeds/beverages jumped 6.6 percent in November -- that's a one-month increase following a run of low to mid single digit gains in prior months. U.S. exporters enjoyed a 0.4 percent price rise for finished consumer goods following a 0.6 percent gain in October. Prices of capital-goods exports rose 0.3 percent.

This report reflects inflation underway for oil and food prices. Oil prices, now near $90, have increased about $15 since the Federal Reserve first announced in late September its quantitative easing program, a program that has raised the floor for commodity prices.

And that’s exactly why “Quantitative Easing” (yes it IS money printing) only masks reality in the short run, but makes the problems FAR worse in the long run. The real problem is DEBT… our money system is based in it to the favor of the bankers and to the detriment of the people. Nothing is fixed until you fix that relationship and clear the debt saturated condition.

Consumer Sentiment for us non-insiders is released at 9:55 Eastern this morning.

Regarding the markets, it appears to me that the move in bonds is getting long in the tooth, as is the move up in equities. We are in a low volume environment and just drifting in wave 5 for now.

Thank you to all who kept the market thread alive over the past couple of days. As I settle in and we get past the holidays we’ll start to get a better handle on the markets.