Tuesday, March 30, 2010

Morning Update/ Market Thread 3/30

Good Morning,

You remember Bill Murray in the movie “Groundhog day?” I’m beginning to wonder if there’s a point in writing about the markets anymore, lol.

The equity futures are up a little, the dollar is down slightly, interestingly the Euro is down a little, bonds are down again right on support, and both oil and gold are down just slightly. Below is a 30 minute chart of DOW futures on the left and 5 minute chart of S&P futures on the right:

The 30 minute chart of the dollar (left) and the long bond futures (right) is interesting, the dollar is forming what looks like a bullish wedge or flag, and bonds are forming the same pattern but the bearish version for price, bullish for interest rates:

They look to be breaking just as the market opens. Of course this is the dilemma of a debt saturated society. Interest rates rising will make life difficult for debt holders. Who’s made themselves the world’s largest debtor? That’s an easy one, we have by allowing the “Federal Reserve” to co-opt our money system and then our government.

The Case-Schiller Home Index showed a drop of -.2% month over month in January, but seasonally adjusted they claim it rose .4%. Prices declined .7% year over year, in line with forecasts. The index itself dropped from 158.18 to 157.89. Obviously the rate of fall has subsided for now. However, looking into the future do not forget that chart of the wave of Option-Arm mortgages that must reset, and gee, just in time to meet rising interest rates. That will be interesting. Here’s Econoday’s spin:
Case-Shiller points to continued gains for home prices in January, gains that may be accelerating given more recent data on new and existing homes. Case-Shiller's adjusted reading for its composite 10 index shows a solid 0.4 percent gain in the month, the second straight 0.4 percent gain. The 20 index shows a second straight 0.3 percent gain. Note that home prices swing lower in the light demand months of the winter, a factor to keep in mind when looking at the unadjusted rates. Unadjusted data, which the news wire run prominently, show a third straight 0.2 percent monthly decline for the 10 index and a very deep 0.4 percent decline for the 20 index.

Among individual cities, gains stand out for Los Angeles, San Diego, and Phoenix, all areas hit deeply by the housing collapse. Prices in Miami, also hit hard, continue to decline but now only marginally, while prices in Tampa show strength.

The housing sector is at a pivot point, hopefully an upward point as second-round stimulus should begin to improve sales and perhaps prices going into the spring. But the expiration of stimulus together with what may be rising long rates are negative wildcards for the longer outlook.
Big difference between a pause and a pivot point.

Citizen Confidence was just released for March, jumping from 46.0 to 52.5, 50 was expected. Feels good to be on a roller coaster that just climbed a giant hill, eh? We’ll see how we all feel at the next low point. By the way, normal readings of Consumer Confident reside in the mid and upper 70’s, not at 50.

As we struggle to put in another economic cycle, the pressures become greater as the debts have not been allowed to be cleansed, they have been additive. This is exactly why we now talk in trillions and why the next swing downward is very likely to be a monetary or nation changing event.

Boy, do we know how the IMF wants to change the world. Power and control. Money from nothing.
March 30 (Bloomberg) -- The International Monetary Fund would determine terms of assistance it provides Greece, Managing Director Dominique Strauss-Kahn said, underlining concerns some European leaders have expressed over the lender’s participation in a possible rescue.

Leaders of the 16-nation euro region last week endorsed a combination of IMF and bilateral loans at market interest rates should Greece run out of fund-raising options, while saying they would maintain control over the process.

Any Greek package would “be an IMF program decided by the IMF as it happens with each and every country,” Strauss-Kahn said in an interview on a flight to Bucharest from Warsaw today. “The IMF will define the conditionality, as we do with any country.”
Greece, I certainly hope that you take the lead offered by Iceland and tell these people to pound sand! These are the same people that brought you to crisis by selling their debt backed and financial engineered systems to you in the first place. Being “rescued” by the IMF is like rushing into the arms of someone trying to drown you.

Bloomberg ran a piece this morning on a hopeful outlook for state tax collections. Let’s look at it, but as you read it, ask yourself if they are actually going to materialize, what the numbers are compared to, and would any increase in tax be due to improvement in the real economy, or would they be related to higher tax initiatives and price increases in things like the cost of utilities?
March 30 (Bloomberg) -- The two-year slide in tax collections that opened a $196 billion gap in U.S. state budgets has stopped, easing pressure on credit ratings and giving leeway to lawmakers as they craft spending plans for next year.

The 15 largest states by population forecast a 3.9 percent gain in tax revenue in fiscal 2011, budget documents show. The 50 states on average may increase collections by about 3.5 percent, the first time in two years the figure is expected to grow, said Mark Zandi, chief economist at Moody’s Economy.com, California took in 3.9 percent more since December than projected in January, Controller John Chiang said this month. New York got $129 million above forecasts in its budget year through February, according to a report from Comptroller Thomas DiNapoli. In New Jersey, the second-wealthiest state per capita, January sales-tax collections were 1.9 percent higher than a year earlier, the first annual increase in 19 months, forecasters said in a report last month.

“This time last year, we were sliding down a mountain,” said David Rosen, chief budget officer for the New Jersey Legislature. “I don’t think we are now; it’s stabilized.”

States collected almost $81 billion less in sales, income and corporate taxes in 2009 than in 2008, according to the Nelson A. Rockefeller Institute of Government in Albany, New York, as the economy struggled through its deepest slump since the Great Depression. Emergency spending cuts and tax increases became routine during the recession that began in December 2007.

‘Panic Mode’
The end of the collections crash will ease fiscal strains that led New York-based Moody’s Investors Service to lower the ratings of five states last year, after no downgrades in 2008. It will also enable governors and legislators to draw up budgets for fiscal 2011, which starts July 1 for most states, with more confidence that money they plan to spend will arrive.

“As long as revenues were sliding, budgeters were in a panic mode,” said Zandi, whose West Chester, Pennsylvania-based company provides economic analysis to businesses, government and investors. “It’s not as scary when revenues are rising.”

States’ combined budget gaps will still total $180 billion in fiscal 2011 and $120 billion in fiscal 2012, the Washington- based Center on Budget and Policy Priorities estimates.

This fiscal year, the 15 largest states expect to collect 11 percent less taxes than in fiscal 2008, budget proposals show. It won’t be until 2013 that revenue returns to 2008 levels, said New Jersey’s Rosen and Barry Boardman, the North Carolina General Assembly’s chief economist.
The panic is letting up for now? Yet they are still facing another $180 billion in shortfalls next year? Here’s what I love about economists and financial planners… they are always projecting out a straight line growth rates of whatever growth just occurred, unless it’s negative of course, then they just panic. But the lines are not straight at this juncture in history, government spending and debt are on a parabolic rocket shot, headed straight to the moon. Good luck with those deficit projections, they will need it.

Still, to see the rate of tax receipts stabilize does show that the cliff dive has subsided for now. How far ahead of that is the stock market? Well, the S&P 500 is now 76% off the 666 March bottom of last year. That is a scary wild number, but remember the way percentages work, we are still way off the highs of late ’07 and we are in a bizarro drug induced debt induced convulsion. Remember, we had a debt bubble, that bubble is likely bursting and the spash of money will create odd looking things as that money looks elsewhere to where it may be treated better.

I haven’t shown a big picture chart in awhile, so let’s back out two years and look at the SPX. We created a huge rising wedge on diminishing volume, then we diverged from that wedge, and although still rising, you can see that we are still inside the confines of what appears to be a large megaphone formation, defined by the diverging blue lines:

Megaphones are usually reversal patterns, although not always. You can see that we’re getting near the top of this one, the first resistance line is about 1,185, there is a pivot at 1,187. Support is now at 1,176 then 1,168.

As I look at the debt markets I see that bonds are clearly under pressure. We’re still sitting on that neckline, what’s it going to be? If we wish to cycle up in the economy and markets, then we pressure debt. There’s only one way to get off the roller coaster, and that’s to step outside of the Fed’s debt backed money box. AZRainman made one heck of a great pinkslip yesterday, we’ll be sending these into the “Federal Reserve” soon:

Queen & David Bowie - Under Pressure: