Tuesday, January 26, 2010

Morning Update/ Market Thread 1/26

Good Morning,

Equity futures are down this morning, below left is a 30 minute chart of the DOW so that you can see the waves from the top, and on the right is a 5 minute chart of the S&P futures showing the overnight action:

While we can see the waves above, it would appear that yesterday proved to be a sideways wave 4 and we broke lower overnight in the start of wave 5. Wave 5 could already be complete as you can see a descending wedge that has already been broken upwards. If so, expect an abc move over the next few days. These waves are likely a part or all of subwave 1 down at the beginning of wave C down.

Both the dollar and bonds rocketed higher overnight. The dollar is trying to break out above recent highs and looks to be on the verge of doing so. Both oil and gold are lower, already erasing yesterday’s small gains.

In a nutshell, yesterday was an oversold rest on lower volume with divergences in the advance decline line pointing towards more selling and the lack of a substantial bounce pointing towards wave 4 sideways motion. Below is a 5 minute chart of the DOW (without overnight action) and it’s pretty easy to count the waves. Note how wave 2 is steeper than wave 4. This is classic, it happens that way because of psychology, people in wave 2 are thinking it was just another dip, and by wave 4 are resigned to the fact there’s probably another leg to go:

Oh, and of course yesterday’s existing home sales being down the most in 40 years helped produce that psychology as well. Can you believe that? A 17% drop in one month? Well, I can’t, that’s because it’s not real, it’s all a manipulation by NAR, the National Association of Realtors. Is it just bad data, or is it intentional, fluffing up prior month's data? I don’t know, but this type of stuff is exactly why we need real measurements presented with complete transparency if we are going to correctly evaluate our economy.

And the Census Bureau came out and said “Ooops” on their last Durable Goods report that they reported at a positive .2%, now stating that it was really a minus .7%! Why is all this happening now? I can assure you these types of massive adjustments and wild swings are not normal and they are NOT okay.

Turns out some emails are floating around regarding with discussion of Goldman possibly just tearing up the AIG CDS that wound up being paid at 100%. Hmmm… and now we learn that certain documents were not handed over to the investigative unit. Hmmm… anybody else smell smoke? The fire I would like to see is the entire Fed that needs to be dismantled. These shenanigans are all the result of allowing private banks to control and produce our money.

Today, of course, begins the FOMC meeting and the wordsmithing will be released tomorrow. They are feeling the heat because they know that they are hitting the wall in terms of selling more debt and if interest rates climb the cost of interest will strangle government who are spending trillions they do not possess.

And thus we wind up with game playing like this:

Fed Weighs Interest on Reserves as New Benchmark Rate

Jan. 26 (Bloomberg) -- Federal Reserve policy makers are considering adopting a new benchmark interest rate to replace the one they’ve used for the last two decades.

The central bank has been unable to control the federal funds rate since the September 2008 bankruptcy of Lehman Brothers Holdings Inc., when it began flooding financial markets with $1 trillion to prevent the economy from collapsing. Officials, who start a two-day meeting today, have said they may replace or supplement the fed funds rate with interest paid on excess bank reserves.

“One option you might want to consider is that our policy rate is the interest rate on excess reserves and we let the fed funds rate trade with some spread to that,” Richmond Fed President Jeffrey Lacker told reporters on Jan. 8 in Linthicum, Maryland.

The central bank needs to have an effective policy rate in place when it starts to raise interest rates from record lows to keep inflation in check, said Marvin Goodfriend, a former Fed economist. Policy makers are concerned that the Fed funds rate, at which banks borrow from each other in the overnight market, may fail to meet the new target, damaging their credibility and their ability to control inflation as the economy recovers.

‘Extended Period’
The choice of a benchmark is the “front line of defense against inflation, and also it’s at the heart of the central bank being able to precisely and flexibly guide interest-rate policy in the recovery,” said Goodfriend, now a professor at Carnegie Mellon University in Pittsburgh.

The Federal Open Market Committee is likely to maintain its pledge to keep interest rates “exceptionally low” for an “extended period” in a statement at about 2:15 p.m. tomorrow, economists said. The Fed probably won’t raise interest rates from record lows until the November meeting, according to the median of 51 forecasts in a Bloomberg survey of economists this month.

Fed Chairman Ben S. Bernanke, in July Congressional testimony, called interest on reserves “perhaps the most important” tool for tightening credit.
Inflation Concerns

Banks’ excess reserves, or deposits held with the Fed above required amounts, totaled $1 trillion in the two weeks ended Jan. 13, compared with $2.2 billion at the start of 2007. The Fed created the reserves through emergency loans and a $1.7 trillion purchase program of mortgage-backed securities, federal agency and Treasury debt.

By raising the deposit rate, now at 0.25 percent, officials reckon banks will keep money at the Fed and not stoke inflation by lending out too much as the economy recovers.

The new policy may be similar to what the Bank of England does now, said Philip Shaw, chief economist at Investec Securities in London. The U.K. central bank’s benchmark interest rate, now at 0.5 percent, is the rate it pays on the reserves it holds for commercial banks. It may drain excess liquidity from the system by selling back the gilts it has purchased through its so-called quantitative easing program, Shaw said.

Let me first say that the entire concept of PAYING for “reserves” is nauseating to say the least. Hank Paulson threw this in during the height of crisis in ’08. Their rational is that the poor little itty bitty banks have “their” money held and so we taxpayers should be paying them interest on their “reserves.” WHAT NONSENSE! Banks must hold reserves as a part of their capital so that they can earn money from the PRIVILEGE of being able to rape the public with usurious interest rates while producing fractional credit dollars from nothing but the stroke of a digital pen. The notion we should also pay them for their reserves is mind boggling.

Now it turns out we are going to allow them use that rate, one they can control easier, to help keep their cost of borrowing down. Here’s a concept, how about not giving away TRILLIONS to criminals, then you wouldn’t have to worry about it?

Not to worry, Obama has a plan to save $250 billion over the next 3 years. That will do it!
Washington (CNN) -- President Obama will announce in Wednesday's State of the Union address that he's proposing to save $250 billion by freezing all nonsecurity federal discretionary spending for three years, according to two senior administration officials.

The proposed freeze, which could help position Obama in the political center by sharpening his credentials on fiscal discipline, would exempt the budgets of the departments of Defense, Homeland Security, and Veterans Affairs, along with some international programs.

"We are at war, and we're going to make sure our troops are funded adequately," one of the senior officials said.
And why do you think he’s talking tough about the deficit now? Notice the exemptions? The very thing he promised to reign in prior to being elected. Is it enough to make the parabolic curve of government debt begin to roll over? Don’t think so, but if and when they do get serious about fighting the deficit, then you will see the suffering by the people deepen. That is assured one way or the other with the policies they are pursuing. There is only one way out, and that is to free ourselves from the system that was put in place in the year 1913.

And a great example of how NOT to control an economy is China. Talk about pilot induced oscillation. China is cranking out credit dollars like there is no tomorrow, oh wait, it’s overheating, better pull it back. Bubble, burst, bubble, burst.
Jan. 26 (Bloomberg) -- Chinese banks have begun restricting new loans, responding to a push by regulators to contain credit after a surge in lending in the first half of this month.

Bank of China Ltd. has stopped extending new corporate loans in the Shanghai area, except for clients who have repaid earlier borrowings, said a person familiar with the matter who declined to be identified. China Construction Bank Corp.’s branch in the city has been told to screen applications for personal loans and mortgages more carefully and to stop new lending once a monthly quota is met, another person said.

China’s benchmark stock index fell to a three-month low today on concern a government clampdown on lending will slow the world’s third-largest economy. Credit Suisse Group AG said in a note today that a countrywide lending halt that started Jan. 19 may trigger a “meaningful” decline in manufacturing.
DUH. It would appear that no nation has any intelligent life forms at all. But I don’t think it’s not that there isn’t intelligent life, it’s all about power and control. We are all being played. If that makes you angry, then I suggest you get really excited about backing Freedom’s Vision. Yes, it’s been taking longer than thought, but the website is coming along and the open house will be soon.

Now moving on to today’s data, the worthless Goldman same store sales fell 2.5% last week, and Redbook is still showing a false 1% rise year over year.

The Case-Schiller Home Index fell in November. Econoday says not to worry, as the price rose in the existing home sales disaster of yesterday. Riiight. Is there anyone left who believes this drivel? Evidently…
Home price recovery stalled through the first two months of the fourth quarter according to Case-Shiller data that shows a headline 0.2 percent decline in November for the composite-10 index following no change in October (158.49 Nov. vs. 158.83 Oct.). The report had shown a series of gains beginning in mid-year, gains that firmed hopes for wider recovery in the housing sector. The composite-20 index also fell 0.2 percent following a 0.1 percent decline in October (146.28 vs. 146.60).

Note though that the headline for this report, interestingly, is unadjusted. When adjusted the data look less downbeat, showing slowing and marginal rates of increase in what is still not the best news for the housing sector.

Today's report could have upset the housing outlook were it not for yesterday's existing home sales report which showed a big jump in December prices, one tied to a falling proportion of first-time buyers (related to the first expiration of first-time buyer credits). New home sales for December will be posted tomorrow and will offer new clues on pricing.
There is waaaay more supply than we are being told. The banks have a huge shadow inventory and people will find that the supply just keeps coming and coming. Prices will not rebound significantly for years. And don’t forget where we are in terms of the mountain of option-ARM loans resetting, the climb is just beginning.

Consumer Confidence just came in with a rise from 53.5 to 55.9 which was ahead of the 53.5 consensus. Normal Confidence numbers are in the 70s, nothing to get excited about here, for sure, although if you were a mindless mainstream reporter, you might say that the market rose with consumer optimism, lol. It could never be because wave 5 was already over.

Oh, and here’s the FHFA Home Prices Report, up .7% in November, up .5% on a YoY basis from the prior -1.9%. But wait, LOL, last month they reported October as being UP .6% and now say “Oooops,” it was really DOWN .4%. Has the whole world gone mad? It would appear so. Again, HUGE adjustments are not normal. Was there a coordinated effort during the November time frame to make the data appear better than it was? Do you see a trend? Again, this is not normal behavior and it is NOT acceptable.
U.S. home prices rose 0.7 percent in November on a seasonally adjusted basis, according to the Federal Housing Finance Agency's monthly House Price Index. The October number was down a revised 0.4 percent, compared to the original estimate of up 0.6 percent. On a year-on-year basis, the House Price Index rose 0.5 percent in November, compared to down 2.0 percent in October.

With this morning's earlier released Case-Shiller gain of 0.2 percent for November, housing is slowly creaking forward in terms of price stabilization. The big risk, however, remains potential supply overhand from foreclosures. But for now, home prices appear to be improving from severely depressed levels. This should be good news for equities-especially since consumer confidence came in a little better than expected.
Riiight, keep telling yourself that… I can fly, I can fly… Now go jump off a tall building and see if it works! This type of data flow is simply not acceptable. Your chain is being pulled, can you feel it against your shackles? What say we break free from this nonesense?

Pink Floyd – Learning to Fly: