Thursday, January 28, 2010

Morning Update/ Market Thread 1/28

Good Morning,

Equity futures are higher this morning, below is a snapshot of the overnight action and the ramping that began with the FOMC announcement yesterday:

The dollar is about level from yesterday’s close, bonds are down slightly, both oil and gold are up slightly.

Yesterday’s FOMC announcement was more of the same, bottom line is that they are still claiming to end many of the support programs, HOWEVER, should the economy not hold up they are ready to jump in, steal some more and will continue to destroy the rule of law along with what’s left of our economy. Isn't that what you heard? That's what I heard.

Then we had to endure the most bizarre State of the Union Speech I have ever witnessed. The vast majority of it was spent talking about the economy. What I heard are the same old and tired central banker boxed in arguments. In what was simply a redress of his worn out campaign rhetoric, he talked mindlessly about spending massively to help this group, then swung wildly to keeping our deficits under control, and then back to massive spending, yet more lip service to being fiscally responsible.

In terms of fixing the economy, how’s this for a plan? “We’re going to DOUBLE this nation’s exports within the next five years!!” Say what? Really? That is exciting, and it would truly be a miracle of mathematically impossibility, perhaps he is the messiah! Because last time I checked, we are manufacturing less and less of anything worth exporting. So, exactly how are we going to do that? Well, he’s going to appoint a commission to promote exporting.

Does this make you feel secure in our future? Yes, it is possible to double our exports in five year, here’s how… you measure your exports in dollars instead of actual products. Then, you crush the value of your money by spending far more than you take in. Wah-lah, value of money cut in half, exports double. See, it’s as easy as reconfirming Ben Bernanke.

Now, I was amazed that he spoke to the very political reform that is contained within Freedom’s Vision! Yes! Support from the big guy! He actually spoke of separating special interest money from politics! I was feeling like a lone wolf on this last year, and now the President is speaking about it. He also spoke about limiting lobbying, and about getting earmarks under control. AND, he even slammed the Supreme Court for their ruling last week basically stating that corporations are PEOPLE and that they have the same rights as real people and thus can spend unlimited funds, which of course, real people could never hope to accumulate. BRAVO! He is, in my opinion, correct on all accounts. Now, where is the action to back up the rhetoric? Was a plan presented to achieve these things? This from an administration that has more central bankers in it than any other in the history of this nation.

Here is the full, and lengthy, State of the Union Address for those who missed it. This is a different type of atmosphere for America, we are changing, but I am not liking the change I am seeing.

Taking credit for 2,000,000 jobs "saved" when 6,000,000 were actually lost in the past year is a new low for truth in government.

Today is the vote to reconfirm Bernanke. He put on a full-court-press over the past week, visiting members of the Congressional Banking Committee… there is speculation that there was deal making taking place. In other words, if you reappoint me, I will continue to crank out the money that will keep you in office. Seriously, the number of contacts he had in the past week is evidently a record.

Our country has sold itself out to debt backed money. Listening to Obama, I just wanted to scream that REAL solutions do exist. They are contained within the pages of Freedom’s Vision! It begins by removing our ties to central bankers and debt backed money, and takes back the money system of the United States, truly accomplishing that to which he is giving lip service. Of course in order for that to happen it is going to take the people DEMANDING that it happen.

It is time to get out of the central banker debt based box and begin looking at the problems with a fresh set of eyes:

To today’s economic news…

The weekly Jobless Claims fell by 8,000 to 470,000. This was worse than the 440,000 that was expected. Here’s Econoday:
Jobless claims fell 8,000 in the Jan. 23 week to 470,000 (prior week revised 4,000 lower to 478,000). The improvement was smaller than expected given that the Jan. 16 week was inflated by holiday processing delays, which the Labor Department said have now eased. Expectations, at 440,000, were looking for a return to the prior trend of late December and early January. The four-week average, up 9,500 to 456,250, rose for the second straight week, a disappointment that ended a string of improvement going back to the beginning of September.

Continuing claims for the Jan. 16 week fell 57,000 to 4.602 million with the insured unemployment rate dipping 1 tenth to 3.5 percent. Improvement here is distorted to a degree by the expiration of benefits which are pushing the jobless out of the insured workforce. Those receiving extended benefits edged lower to nearly 262,000 with those receiving emergency compensation falling a little more than 300,000 to 5.35 million (these data are for the Jan. 9 week).

Today's report is a disappointment pointing to no improvement, and even the risk of a set-back, for monthly payroll data. Stocks and the dollar edged lower in reaction to today's 8:30 data that included a smaller-than-expected gain for durable goods.

People are now falling off not only the regular rolls, but their emergency benefits are running out too. This was the first week in quite some time that the year over year total combined number is actually down from 5.7 million last year to 5.6 million this year:
The advance unadjusted insured unemployment rate was 4.3 percent during the week ending Jan. 16, a decrease of 0.2 percentage point from the prior week. The advance unadjusted number for persons claiming UI benefits in state programs totaled 5,605,729, a decrease of 185,351 from the preceding week. A year earlier, the rate was 4.3 percent and the volume was 5,715,432.

Durable Goods orders came in way below expectations but is slightly positive for the month, .3%, but the consensus was for a 1.6% jump, and it is still down 3.1% over the height of the crisis last year.
Today's durables report is showing the manufacturing sector continuing to slowly gain momentum. Despite a December gain, the immediate question for the markets is whether a disappointment on headline expectations is offset by upward revisions to November and favorable detail for December. New orders for durable goods in December rebounded 0.3 percent after a revised 0.4 percent drop in November. The November number had previously been estimated to be a 0.7 percent decline. However, the December gain fell short of the market forecast for a 1.6 percent spike. But weakness was the lack of a rebound in Boeing orders. Excluding the transportation component, new durables orders advanced another 0.9 percent, following a 2.1 percent rebound in November.

Excluding the weakness in civilian aircraft, December was positive overall. Also, there is an indication of growing optimism by businesses. Nondefense capital goods orders excluding aircraft increased 1.3 percent in December after jumping 3.1 percent in November.

Year-on-year, overall new orders for durable goods improved to minus 3.1 percent in December from minus 6.9 percent the month before. Excluding transportation, new durables orders returned to positive territory, rising to plus 0.5 percent from down 5.5 percent in November.

Despite a shortfall in headline expectations for December, upward revisions to November, a jump in ex-transportation in December and another gain in nondefense capital goods ex aircraft may turn the report into a net positive-even compared to overall expectations. However, initial jobless claims were worse than expected.

Remember, we fell off a cliff and we simply landed with a thud. It will take years of incremental gains to get even close to where we were. And the landing that’s been achieved was achieved at the expense of trillions of dollars. What happens as that support is no longer there? Is there fundamental improvement? NO, keep your eye on the debt. Until the debt is cleared our economy will not move forward when measured in real things. This is exactly what the Administration fails to take seriously and what they continue to make worse. Yes, they came in with a mess, but you cannot solve a debt problem with more debt.

In terms of the market, we went right down to critical support and bounced. It did appear to be a short wave 5 down that completed yesterday. That means that we likely witnessed the first part of wave 2 up that follows the 600+ point decline of wave 1. Wave 2 is likely to retrace 61.8% of wave one and that would roughly target the 1,125 area. Of course it can be anywhere from here to the old high, but that is the most common wave 2 retrace. Remember, we just had a VIX market buy signal. Failing to reach 61.8 would mean a very weak retrace. Wave 3 down (of the larger wave 1) should follow that.

So far the bounce looks weak for a wave 2. With Beranke and fourth quarter GDP to come tomorrow, I would be ready for anything in here.

Yesterday’s action produced hammers on most of the daily charts and the XLF was strong. This is usually a sign of bottoming but needs confirmation from today’s action. 1,090 is still the working support pivot, 1,107 is the next higher hurdle, and should we break down, 1,080 is still key support 1,061 the next lower pivot.

I note that the futures have made a W looking formation. These formations can be bottoms, but if they fail, can also be continuation patterns. The tell for me is that at the end of the W there is usually a retrace lower… if that retrace stops above the half way point and bounces, the odds are that we are going higher. If, however, it breaks below the half way mark, odds change to lower. As I type we are about the half way mark now:

Yesterday’s speech reminded me more of British politics. Perhaps that’s what we degenerate to when people are frustrated? Hey, if you are trying to teach a pig to fly (debt backed money), you are going to be frustrated because pigs don’t really have wings!

Pink Floyd- Pigs On The Wing: