Friday, February 12, 2010

Morning Update/ Market Thread 2/12

Good Morning,

Equity futures are lower this morning, falling to the bottom uprising trendline from last Friday’s low. Below is a 60 snapshot of the DOW on the left and 5 minute overnight action of the S&P on the right:

The dollar is considerably higher, bonds are slightly higher, while both oil and gold are down.

Have you noticed that bonds are acting differently? This is what I was forecasting, that during market periods where stocks fall, bonds would rise slightly, but when stocks rise bonds would fall significantly, the end result is that bonds have been ratcheting lower. The longer term bonds are now back to their large neckline, a long term support trendline, and that area must hold or it will be signally much higher rates rate around the corner – deservedly so for a nation that must finance and refinance more than $2.5 Trillion this year. Yesterday’s 20 and 10 year auctions were both very weak. While the Primary Dealers are required to buy our nation’s debt, others are not. What occurred last year is that we stepped in and we used TRILLIONS through quantitative easing and mostly through buying GSE debt to buy down our rate of interest. But that can only go on for so long before you either pile on more debt or outright destroy the value of your money as the quantity spirals out of control.

No, Bernanke and the boys cannot fool mother nature, nor can Greece or anyone else. How ‘bout the German Chancellor, Angela Merkel? She says, “not so fast.” She understands what bailing out Greece means for Germany… it means poisoning her own country. Where does that stop? Spain, Portugal, Ireland? No, the world is awash in debt, entangled in derivatives and these problems are only going to get worse until the root problem of debt backed money is taken care of properly. Did I mention Freedom’s Vision yet?

Retail Sales in the U.S. were reportedly up .5% in January on consensus. The mainstream is flashing hugely bullish headlines over that nonsense, here’s Econoday:
Not only were holiday sales front loaded in November but it appears that they were back loaded into January also as consumers apparently spent their cash and gift cards in January. Overall retail sales in January posted a healthy rebound of 0.5 percent after dipping 0.1 percent the month before. The comeback matched the market forecast for a 0.5 percent gain. Also, December was revised up from a 0.3 percent decline. Excluding autos, sales in January were up 0.6 percent, following December's drop of 0.2 percent. Components were mixed with gasoline playing an essentially neutral role. Excluding both autos and gasoline, January sales rebounded 0.6 percent, following a 0.3 percent decrease in December.

The January boost in sales was led by nonstore retailers, general merchandise, and electronics & appliance stores. Weakness was mostly housing related as declines were led by furniture & home furnishings and building materials & garden equipment. Other components in the negative included miscellaneous store retailers and auto dealerships.

Overall retail sales on a year-ago basis in January declined to up 4.7 percent, from up 5.5 percent in the prior month. Excluding motor vehicles, the year-on-year rate slipped to 4.6 percent from 5.1 percent in December.

On average, the last three months of retail sales have been moderately strong. While not at a typical recovery pace, the consumer sector appears to pulling its weight somewhat more than earlier expected. The report is a positive for equities but trader focus is overseas and futures are down.

Let me just say that these numbers are a complete and total bogus measurement of overall retail sales. This measurement suffers from a bias created when businesses go out of business as it measures sales from existing sales only, not capturing the lack of sales from businesses that no longer exist. This is why sales tax data is the only way to correctly measure what is happening to overall retail sales.

Consumer Sentiment comes out at 10 Eastern and the budget deficit at 2 Eastern.

You can see in the SPX 30 minute chart below that a break under about 1,068 gets clear of the uptrend. 1,061 is support:

As I type, the rising trendline from last week is giving way, it should be an interesting day now without the Greece backstop again and the Euro setting new downtrend lows. Looking difficult to me to find a safe place for shelter!

The Rolling Stones – Gimme Shelter: