Thursday, February 18, 2010

Morning Update/ Market Thread 2/18

Good morning,

Equity futures are lower this morning. Below is a 60 minute chart of the DOW futures on the left and on the right is a 30 minute chart of the S&P futures:

The dollar is higher, bonds are higher, both oil and gold are lower.

Let’s start over at the world’s largest retailer, Wal-Mart, where they missed earnings estimates for the fourth quarter. Gee, that’s different. Sales, measured in dollars, were down 1.6% year over year. Again, that’s measured in dollars, what would they be if measured in actual goods? And that’s with all sorts of competitors going out of business over that timeframe, so what does that tell you about overall sales? It tells me to keep looking at sales tax receipts and keep ignoring all the other manipulated data.

Weekly unemployment claims jumped up towards the 500k level once again, coming in at 473,000, a jump from last week’s 440k and much higher than consensus as well:

Stocks and commodities dropped in immediate reaction to a much larger-than-expected level of jobless claims, at 473,000 in the Feb. 13 week vs. expectations for 440,000. There's important special factors possibly affecting the data but their effects are unknown and the Labor Department isn't offering any explanations. There was extremely heavy weather through most of the nation in the reporting week, and results from four states had to be estimated including the key states of Texas and California with holiday backlog in the latter having skewed prior reports.

Turning to the four-week average points to steady conditions in the labor market. The average fell 1,500 to 467,500, a level roughly in line with the last four weeks and in line with readings in late December. Other data in the report include no change for continuing claims, at 4.563 million, and no change in the unemployment rate for insured workers, at 3.5 percent.

Wait and see is the best approach to judge jobless claims. The weather effect may yet appear, having produced perhaps another backlog due to the closure of claims offices. The outlook for the jobs report in February is open which will put the emphasis on private forecasts especially ADP's tally. Markets are stable at slightly lower levels.

LOL, there are special factors possibly affecting the data but the Labor Department isn’t talking. Niiiiccce. Did that come from the DOL or from Econoday? Well, no mention of special factors in the DOL’s report, but if they are talking about weather and the snow storms on the east coast, wouldn’t that keep the number of claims lower, not higher? I mean maybe people who are layed off can make it into the unemployment office to file a claim but they can't make it into work, is that the way it works?

Here’s what we know, there are now thousands of people dropping off the rolls, but the supply of new claimants is not letting up. As regular benefits are exhausted, the new Emergency Unemployment Compensation (EUC) benefits kick in. How are those looking? Straight from the DOL’s report:

States reported 5,797,875 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending Jan. 30, an increase of 304,748 from the prior week. There were 1,903,779 claimants in the comparable week in 2009. EUC weekly claims include first, second, third, and fourth tier activity.

AN INCREASE OF 304,748 FROM THE PRIOR WEEK! Holly cow! Where are all these new jobs the administration keeps talking about? Where is the turn around in employment? What is so dang hard to understand about DEBT SATURATION?

And remember, our population keeps growing. We need to MAKE a ton of jobs just to stay even.

No, printing money and giving it to the banks to manipulate our markets does not make us a wealthy nation. It makes us a poor and corrupt nation. I can hardly look at the economic data, I have completely lost faith in what is being reported. The hot money funnels off into the markets and there are just flat out games being played with the supply and the price of oil. Now we’re seeing that in the inflation statistics, here’s what’s going on with the Producer Price Index:

Higher energy costs in January jacked up the headline but the core rate also heated up a bit. The overall PPI jumped 1.4 percent after rising 0.4 percent in December. The January surge came in much higher than the market forecast for a spike of 0.8 percent. At the core level, the PPI increased to a 0.3 percent gain after a flat reading in December. The consensus had projected a 0.1 percent rise.

The headline increase was led by a 5.1 percent surge in energy costs with gasoline up 11.5 percent. Food costs also were up notably, gaining 0.4 but down from 1.3 percent in December. For the latest month, the core was led by light motor trucks which rose 1.9 percent and by pharmaceutical preparations which jumped 1.3 percent.

PPI numbers have been quite volatile recently. The latest headline is quite strong but you only have to go back to November for a number that topped it with a 1.5 percent spike. The same holds true for the core. The January jump of 0.3 percent is the largest since only November which saw a 0.5 percent surge.

For the overall PPI, the year-on-year rate increased to 5.0 percent from 4.7 percent in December (seasonally adjusted). The core rate year-ago pace firmed to 1.0 percent from 0.9 percent the prior month. On a not seasonally adjusted basis for January, the year-ago increase for the headline PPI was up 4.6 percent while the core was up 1.0 percent.

Today's report indicates that there are pockets of inflation despite the sluggish recovery. But if economic growth remains soft and if the Fed does unwind its balance sheet expansion in a timely manner, the pockets of inflation likely will not spread. But those are big ifs.

Markets are ignoring the PPI release for the most part as initial jobless claims jumped in a report released at the same time. Also, the energy based jump apparently is being discounted as not continuing. Treasury yields edged down on the release of the PPI and jobless claims as equity futures eased and the dollar firmed.

Month to month up 1.4% and year over year up 5%! Yowzaaa, that type of math doesn’t give our system very much longer at all. The bigger these numbers get, the shorter the time our monetary system has, that’s all there is to it. Deflation is the only thing that will make the numbers come down and allow room for more debt cycles. When you erase the deflation with hot money, the real economy still suffers twice as bad because the debt is still there yet the price of things continues to rise making the exponential math worse.

We get CPI tomorrow. Imagine Wal-Mart sales now, knowing that PPI is up 5% year over year. Businesses out of business and yet same store sales are down significantly measured in dollars. When will we wake up and realize that “it’s the DEBT, stupid?”

We let the central bankers screw with and manipulate what could be a terrific time in world history. Just look at the technological advancements in the past few decades.

As I’m typing the markets are doing another low volume opening ramp job. I lost faith in the markets a long time ago, they are no longer performing their function of price discovery. No, when the bond market is underpinned directly by government intervention and when the word’s largest banks are allowed free reign with hot money to use quant computers with shadow trades while the government cheers them on, the markets are not right. Don’t tell me the markets are never wrong, the markets have been taken over. It’s a very tragic thing to watch if you understand how this is happening and the long term effects that you know are going to occur.

The markets are very overbought in the short term. The rise in prices over the past few days has come on progressively smaller volumes. The market is absolutely being propped up on these low volume ramp jobs.

Yesterday was the best fit for a turn date, but options expiration is Friday. There is a wave 3 waiting in the wings. No, I don't think the computers can stop it once it comes and in the real world may only serve to make it more violent.

Yesterday the XLF produced a black outside hammer, a possible top indication and it is opening lower this morning:

Of course hammers have to be validated by today’s action. And here’s a snapshot of the opening spike. Yeah, that’s natural, just mom and pop buying the market with their 401k’s.

Maybe I’m just old fashioned, longing for a throwback to days gone by. No, I don’t think that’s it, I think were lost, lost in a masquerade…

George Benson & Dione Warwick - This Masquerade