Thursday, January 14, 2010

Morning Update/ Market Thread 1/14

Good Morning,

Equity futures are down a little this morning, here’s the action on a 5 minute chart of the DOW and S&P:

The dollar is just about even after being higher overnight. Have you noticed that since the dollar began to rise from its recent low that the correlation between the dollar and equities has changed? The trade had been dollar down, equities up, but then became dollar up, equities up (they can only go up by order of the King). And now what little movement down in the markets has come has followed the dollar coming down. This is just a point of observation, the relationship sometimes changes and I’m sure will change again.

Bonds are rising, correcting their large downward move and the bounce is coming off support. Again, money flowing into bonds is not flowing into equities. Oil is down slightly, now back below $80 a barrel, and gold is up slightly at $1,141 an ounce.

The Retail Sales Report for December came in with a pretty large miss at -.3% when +.4% was expected for the month. Here’s Econoday:
Retail sales were unexpectedly down in December but somewhat offsetting were upward revisions for November. Overall retail sales in December fell 0.3 percent after a 1.8 percent surge in November. The December gain was far below the market estimate for a 0.4 percent rise. Excluding autos, sales decreased 0.2 percent after jumping 1.9 percent in November. The November numbers, however, were revised up from original estimates of up 1.3 percent for total and 1.2 percent for excluding autos. Excluding both autos and gasoline, the December number still was disappointing, declining 0.3 percent, following a 1.0 percent boost in November.

The December drop in overall sales was led by a 0.8 percent fall in motor vehicle sales (a relatively large component) and electronics & appliance stores, down 2.6 percent. Declines in December were broad based. However, gasoline station sales were up 1.0 percent after a huge 9.6 percent surge in November.

The December retail sales report should weigh on equities. Treasury yields were down on the release. Adding to market weakness was an unexpected rise in initial jobless claims.

Of course I don’t really care much for month over month data, however a decrease in the month of December should frighten the heck out of most businesses. The yearly change figures in the chart above are just NONSENSE and this Retail Sales report should be taken with a huge grain of salt. Again, the retail sales figures do not reflect sales at stores that have gone out of business and thus is inflicted with substitution/ survivor bias. Again, the only real measurement we have is sales tax receipts. So, even with substitution bias December was a down month… ouch.

The Weekly jobless claims report is yet another bomb shell. The experts were expecting initial claims of 437,000 and it came in at 444,000:
Weekly unemployment claims are mixed for the Jan. 9 week. Initial claims rose 11,000 to 444,000 in what is unfortunate news but news offset by yet another decline in the four-week average, down 9,000 to 440,750. The four-week average has declined for 19 straight weeks in what is an extremely powerful indication of improvement in the labor market. (Note claims for the Jan. 2 week are revised 1,000 lower to 433,000).

Another indication of improvement, though a less powerful one skewed by workers dropping out of the workforce, is a steep 211,000 drop in continuing claims to 4.596 million. The unemployment rate for insured workers slipped another notch to 3.5 percent. Data on emergency benefits show a decline while extended benefits show a rise.

Last week's employment report is a stumbling block for the economic outlook and greater improvement will be needed in coming claims reports to raise confidence for January's employment report. Today's report together with a weak headline for retail sales are sending equities and commodities lower.

The real story is that there are thousands of people exiting the workforce altogether as well as additional thousands who are running out of both regular and extended benefits. The December data is heavily adjusted for seasonality, of course, but just so you see the raw numbers from the DOL, here they are:
The advance number of actual initial claims under state programs, unadjusted, totaled 801,086 in the week ending Jan. 9, an increase of 156,165 from the previous week. There were 956,791 initial claims in the comparable week in 2009.

The advance unadjusted insured unemployment rate was 4.6 percent during the week ending Jan. 2, an increase of 0.4 percentage point from the prior week. The advance unadjusted number for persons claiming UI benefits in state programs totaled 5,988,940, an increase of 503,924 from the preceding week. A year earlier, the rate was 4.4 percent and the volume was 5,855,855.

Catch that? Real initial claims are over 800K, down some from a year earlier, but the total people in state programs receiving benefits ROSE, even with the thousands falling off the rolls. The participation rate is plummeting and without that, the unemployment rate would be MUCH higher:

And yet, the children in the White House put out these infuriating LIES:
2 million jobs from stimulus - White House

NEW YORK ( -- The economic stimulus program has boosted employment by 1.5 million to 2 million jobs, the president's chief economic adviser said Wednesday.

The Obama administration estimate includes both jobs directly funded by stimulus money, as well as those created indirectly by companies buying supplies for stimulus projects, people spending their stimulus tax cuts and the like.

The report, by the Council of Economic Advisers, is likely to spark sharp reactions from the Obama administration's critics who argue that the $787 billion package has failed to deliver on its promises.

To be sure, the economy has continued to lose jobs despite stimulus - shedding 85,000 in December. The administration, however, maintains that things would have been much worse without the American Recovery and Reinvestment Act.

SAVED 2 million jobs? Well, there are liars and then there are children who when they talk say nonsensical things. Which is occurring in this Administration? Both. Here’s your 2 million job gain… try a nearly 6 million job loss in the past year alone, and that’s with all their bad data:

Oh, but it “WOULD HAVE BEEN WORSE” had it not been for the stimulus, LOL! NO, it is this ugly BECAUSE OF the stimulus! Here’s a lesson in economics for the children: Once debt saturation occurs, adding more debt into the system only leads to future defaults and to higher unemployment. There is a phase transition that occurs as saturation levels are reached. Debt based stimulus that used to work to add jobs reverses and does the opposite once incomes can no longer support debt beyond that which it already carries. Proof? The chart below shows that for each new dollar of debt added to the economy, 15 cents is SUBTRACTED from GDP:

Citizens became saturated with debt first, then corporations and local governments. The Federal government has actually been saturated for quite some time, yet they are pretending that they still can carry more. They cannot, and thus they have begun piecemeal default via “Quantitative Easing.” Still, they continue to add more and more debt:
December deficit nearly doubles

NEW YORK ( -- The U.S. government posted a deficit of $91.9 billion in December, nearly double the shortfall of a year earlier and marking the government's 15th straight month in the red, the Treasury Department reported Wednesday.

The shortfall brings the total deficit for the first quarter of fiscal year 2010 to $388.5 billion, up from $332 billion during the same period last year.

It was the second consecutive December the government spent more than it took in. In December 2008, the deficit was $51.8 billion.

While December's deficit was less than the $120.3 billion in November, that's no reason to celebrate. The government typically rings up a surplus in December as year-end bonuses boost high individual withholding and as companies make quarterly income tax payments.

The deficit remained high in the first three months of the fiscal year because while spending was down by $3.6 billion from the same period last year, tax revenue fell even more, dropping by $59.7 billion as individual income and payroll taxes declined.

Interest paid on the debt in December was $104.6 billion -- 34% of federal outlays for the month.

"No surprises, the government obviously continues to run a very large deficit," said Gus Faucher, director of macro economics at Moody's "But that's necessary as a response to the recession and the financial crisis."

The Treasury estimates the annual deficit will climb to $1.502 trillion for the full fiscal year 2010, up from $1.42 trillion in 2009.

And these are their funny numbers that don’t count future obligations or wars! But did you catch that we are now beyond the point where our interest payments on the current debt take more than ONE THIRD of our income? Hello? And that’s with funding our debts with short term extreme manipulated low interest rates. Just imagine once interest rates rise. They can’t allow it, and thus they must pour/print even more to prevent that and the monetary death spiral is in full motion.

And the worse than worthless credit agencies – no, wait, they are worse than worse than worthless, they are damaging and destructive to our economy as they wait for failure to occur before even mentioning anything. Fitch came out and warns that the U.S. AAA rating is in jeopardy… no, really? Nice timing. I have a news flash for Fitch, it is already FAR beyond mathematical recovery:
US must cut spending to save AAA rating, warns Fitch

Fitch Ratings has issued the starkest warning to date that the US will lose its AAA credit rating unless acts to bring the budget deficit under control, citing a spiral in debt service costs and dependence on foreign lenders.

Brian Coulton, the agency's head of sovereign ratings, said the US is shielded for now by its pivotal role in global finance and the dollar's status as the key reserve currency, but the picture is deteriorating fast enough to ring alarm bells.

"Difficult decisions will have to be made regarding spending and tax to underpin market confidence in the long-run sustainability of public finances. In the absence of measures to reduce the budget deficit over the next three to five years, government indebtedness will approach levels by the latter half of the decade that will bring pressure to bear on the US's 'AAA' status", he said.

Fitch expects the combined state and federal debt to reach 94pc of GDP next year, up from 57pc at the end of 2007. Federal interest costs will reach 13pc of revenues, meaning that an eighth of all taxes will go to service debt. Most fiscal experts view this level as dangerously close to the point of no return for debt dynamics.
No, current debt is FAR beyond 94% of GDP, even with our trumped up and way overinflated GDP numbers. And, we’re not just close to the point of no return, we are so far from it, we can’t even look back to see it.

Import and Export prices came out basically flat month over month, but indeed we are now seeing large gains year over year, especially in import prices as the cost of oil is now far above where it was one year ago. This produced a year over year increase of 8.6%!
Headline import prices were unchanged in December masking yet another significant rise in non-petroleum import prices, which rose 0.5 percent following a 0.6 percent gain in November and a 0.5 percent gain in October. Pressure appears in the industrial supplies ex-petroleum component which surged 2.2 percent vs. plus 2.8 percent and plus 2.2 percent in the prior two months. Foods, feeds & beverages also show pressure, up 0.9 percent for a second month in a row. But the pressure -- and this is key -- is yet to show up in final goods where import prices for consumer goods were unchanged and capital goods were up only 0.1 percent.

On the export side, prices rose 0.6 percent on top of a 0.9 percent jump in November. Here the pressure is centered in agricultural prices which jumped 2.0 percent following November's 4.0 percent surge. Note though that two days of extreme price erosion for agricultural commodities, due to Tuesday's quarterly USDA report that shows much greater than expected output, points to a big easing in agricultural export prices for January. Export prices of finished goods, like on the import side, show no pressure, unchanged for both consumer and capital goods.

Imported inflation, largely the result of the weak dollar, is a significant but still latent risk for economic policy. Until this pressure begins to emerge in finished prices, the outlook for a long spell of zero interest rates for Fed policy will remain intact. Consumer prices will be posted tomorrow with producer prices to be posted on Wednesday.

Yes, pouring billions of hot dollars directly from the banks into oil and equities sure is working well to help the economy and those who are debt saturated with wages stuck in neutral and rolling down hill.

Yesterday the 1,133 pivot acted as support, 1,168 is the next higher pivot. Divergences continue to increase, the DOW is outperforming now and made a new high while the other indices did not. There is also a new divergence present on the hourly RSI. The DOW continues to rise within the confines of its smaller rising wedge, bouncing perfectly off the bottom of it yesterday - an overthrow would not be unexpected:

Don’t worry though, the children in the Administration, as reported on the Cartoon News Network, say they are creating millions of jobs, everything is going to be alright now…

Bad Company – Alright Now: