Tuesday, February 16, 2010

Morning Update/Market News 2/16

Good Morning,

It is the first trading day of the week, after all, so the odds of the past 6 months give you a ridiculous 90% chance of having a ramp job, so why not front run the ramp on Friday afternoon? No surprise to once again find that the futures snuck higher over the weekend and then at midnight, while you and every other sane “investor” were asleep, the futures ramped. Below is a 60 minute chart of the DOW futures on the left, S&P 5 minute on the right:

Both the dollar and bonds are lower, oil and gold are both higher. Gold just broke upwards from a bullish triangle, this break is probably a decent entry point as long as a stop is used below about $1,100. Below is a chart of oil on the left and gold on the right where you can see the triangle to which I’m referring. Note that there is no clean entry available on the break during market hours to you as the break and run occurred over the weekend. I am not chasing that as a trade myself, simply due to the primary count in equities. That doesn’t mean this can’t run, it certainly may:

The Empire State Manufacturing Survey released this morning came in higher than expectations with a reading of 24.9, up strongly from prior readings. The Empire State Index is a survey of companies in the New York area, here’s Econoday:

The first indication on the manufacturing sector for February is very positive as the Empire State general business conditions index jumped nearly 9 points to 24.91 -- a reading that indicates substantial month-to-month acceleration in the region's manufacturing conditions. New orders, at 8.78, and shipments, at 15.14, are both solidly over the break-even zero level to indicate month-to-month expansion. Both readings show less month-to-month acceleration than in January but January's readings were unusually strong relative to December.

Inventories came in at zero to indicate no change from January to end a long deep run of negative readings in what is a significant turn for the sample. Restocking hasn't begun yet but the reading indicates an end to destocking. The end of the inventory correction is helping employment which posted a positive reading for a second month, at 5.56 to indicate month-to-month expansion in the region's factory payrolls. Month-to-month increases in shipments are drawing down available capacity, evidenced by a second month of increase in the workweek, at 8.33.

The general improvement is evidenced in prices where prices received also rose for a second month, to 4.17. The reading is only a little above zero but it hints at pricing power for finished goods. Prices paid, at 31.94, continues to show significant month-to-month pressure reflecting rising prices for raw materials likely centered in energy products. Readings on the six-month outlook are also solid showing special strength in expectations for both prices and employment.

Commodities popped slightly higher following today's report with limited reaction, at least initially, in the stock market. The Philadelphia Fed's regional manufacturing survey, which last month tracked closely with this report, will be posted on Thursday.

This is exactly what I dislike about Indexes, and in particular ones that are based on subjective surveys. If you look at that chart you would conclude that manufacturing is back at the same level it was in ’07, and that is not the case in reality, not even close. In fact, capacity utilization is down near 70%, these are all time record low readings, barely up off the recent lows. Some people use this as a leading indicator, and it maybe somewhat, I tend to look at it as a business sentiment indicator more than a true measurement of what is actually being produced.

Later in the week will bring inflation data, the Philly Fed Survey, Housing Starts, and “Leading” Indicators.

Much banter over the weekend on Greece. Of course their problem is debt, as in too much of it. So, what are the proposed solutions? Come in and “bail them out” by giving them more DEBT!? Of course since they were foolish enough to get caught up in the whole debt is money SCHEME, they are now damned if they do and damned if they don’t. In the end this weekend, here’s what the European finance ministers actually did... nothing:

Europe Ministers Ready to Force Deeper Cuts on Greece

Feb. 16 (Bloomberg) -- European finance ministers turned up the pressure on Greece to put its public finances in order, and refused to say how they would make good on a promise to rescue the nation if it can’t tame its debt.

“We certainly won’t let them off the hook,” Austrian Finance Minister Josef Proell said today before a meeting of European Union finance ministers in Brussels. His Swedish counterpart, Anders Borg, called for Greece to take more “concrete steps to regain credibility in the markets.”

The ministers from the 16 nations that use the euro told Greek authorities yesterday to ready more deficit measures for next month, in case the government fails to show sufficient progress reining in the region’s largest budget deficit. After leaders promised to back Greece last week, EU governments are looking for guarantees that Greece can slash spending before they spell out what help they may offer.

No, no, “We certainly won’t let them off the hook,” because that would be a “moral hazard.” They need to cut back on spending forcing their economy to suffer, afterall, that's the right thing to do for debtors, right?

Of course that means no debt forgiveness or any other method to clear the debt. And you may say, “well the dummies deserve what they get!” And you’d be right, and so do we, but not for the reasons you may think, the real stupid act was allowing a debt backed money situation controlled by the bankers in the first place, that was the ultimate “moral hazard!”

When current income cannot service debt, there are very few options. Defaulting on the debt clears it and allows room for another cycle. Taking a “bailout” in the form of more loans is the most ridiculous notion and event that could ever transpire. That would be like giving someone who has too much credit card debt more credit cards so that they can continue to borrow from the right hand to give to the left. Thus they are caught in the central bankers' circle of debt. That’s what happens when your money is based in and created by debt.

Now, another option is for other countries to come in and “guarantee” some of their debt. Does that really solve anything? Of course not, all it does is transfer the default that's coming onto another party.

Many are calling for the IMF to come in and “rescue” the situation. This is laughable. The IMF and the central bankers they represent are the CAUSE of the situation! They are the world’s pushers of debt, they print money for nothing, loan it to desperate people in desperate situations of their own debt backed money making, and take gold as payment in return! LOL, that’s how they became the world’s third largest holder of gold! Insane.

But here in the U.S., no revolt yet, why here’s a nice picture of a happy business man. Why is he smiling? Is it because business is booming? No, no, it’s because he scored a big fat whopping tax refund!

Lost money? Score a whopping tax refund

NEW YORK (CNNMoney.com) -- Sick of sending big checks to the IRS? For some business owners, this tax season will bring a rare reversal: A stimulus-fueled tax change is putting cash back into the pockets of qualifying entrepreneurs.

Bill Hewitt, who owns several real estate ventures in Denver, recently collected a $150,000 refund check from the IRS thanks to the new tax rules. "Without that money, I probably would have gone under," he says. "When you can't get any loans from anybody, it kept me alive."

Hewitt took advantage of a tax maneuver called "loss carryback." When a business books a profit, it pays income tax on its earnings. But if the business then turns a loss in later years, tax rules allow the business to "carry back" its loss and deduct the money from earlier profits. By filing an amended tax return for the earlier, profitable year, the business can claim an immediate refund on the taxes it paid.

IRS rules usually let companies carry back a loss into the prior two years. That means a business with a loss in 2009 could go back and amend its 2007 taxes, but any profits from 2006 or 2005 would be untouchable.

But last year's Recovery Act extended the window for small companies, allowing businesses with average annual sales of $15 million or less -- like Hewitt's -- to carry their 2008 losses back five years. In November, Congress expanded the tax break even further, allowing businesses of all sizes to carry their 2008 and 2009 losses back for five years.

Yes, giving back tax money or lowering taxes under the right circumstances would be a good thing. There’s only one problem in doing so at this stage, and that is that our Federal Tax revenues are crashing while our Federal expenditures have gone ballistic making for an impossible math situation all the way around. What is needed is to break the cycle, the only way to do that is to clear out the debt that permeates consumers, businesses, and government. But when money comes into existence as debt, you are doomed to simply repeat the cycle anew, even if the debt is cleared. I’m pretty sure that unless something major occurs that he won’t be smiling so large over the next couple of years.

The technical landscape in the markets is still the same. Friday was a small change in the McClelland Oscillator so today’s move should be large. Prices are still trapped in the 1,080 area underneath the 1,090 pivot. McHugh has a turn date this week and believes it will be the top of wave 2 and that next will come wave 3 down. That’s what I’m working from, I think we have interesting times dead ahead, and I don’t think the excitement in Europe is anywhere near over.

Carlos Santana- EUROPA: