Thursday, April 15, 2010

Morning Update/ Market Thread 4/15

Enjoy your tax day! Doesn’t it feel great working hard so that you can give it away like a share cropper? Why it sure makes me feel good knowing that my family’s productive efforts are being shared for such worthy causes.

Hardly believable is that equity futures are down slightly after yesterday’s rocket ride. Weee! Who’d a thunk that man could build a roller coaster that goes so high? Can’t wait for the thrill when the bottom drops out, that’s going to be exciting, just like a good taxpayer likes his markets to function – like an amusement park. And the dollar went straight up overnight, the Euro straight down, wee! Bonds down, oil down, gold down.

Continuing Claims leaped 24,000 for the week to 484,000, rising back nearly to the 500K level again. “Don’t worry,” the tax dollar supported government employees say, “special factors, like Easter and another ‘holiday’ you’ve never heard of, are to blame.”
Claims continue to pile up due to special administrative factors. Initial jobless claims jumped for a second week, up 24,000 in the April 10 week to 484,000. The four-week average is up 7,500 to 457,750 but is still a bit below the month-ago level. Continuing claims for the April 3 week rose 73,000 to 4.639 million, a level that is also the four-week average. Here too, the four-week average is a bit below the month-ago comparison.

The Labor Department attributes the rise in claims not to economic factors but to continuing administrative snags as offices catch up with claims during the shortened Easter week and, in California, for the Cesar Chavez holiday. The department is warning the next report may be affected by quarter-end reclassifications for emergency compensation, but that the chances for downward revisions are greater than for upward revisions.

Given all the noise in the data, expectations are likely to hold for a big gain in April payrolls, at least for now. Equities and commodities fell but only briefly in initial reaction to today's report.

Of course the markets only fell for a moment, people aren’t really out of work, they are simply not working due to the Chavez holiday. Duh.

From the Department of Labor, "States reported 5,855,301 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending March 27, an increase of 261,817 from the prior week. There were 2,148,241 claimants in the comparable week in 2009. EUC weekly claims include first, second, third, and fourth tier activity."

Only 3.7 million more on Emergency Unemployment yoy, and 261K more than the WEEK prior. That's all... no biggie.

So, it only makes sense that the Empire State Manufacturing index should jump…
Activity is accelerating sharply in the New York manufacturing region as the Empire State index jumped 9 points to 31.86 signaling strong month-to-month growth for April. The growth is sweeping across factors: new orders, shipments, inventories, jobs, delivery times, input prices. A draw in unfilled orders is the report's only negative signal.

Strength is also evident in data on the six-month outlook where the region's manufacturers increasingly see strong conditions and increasingly expect to make capital investments in their businesses. The manufacturing sector more and more is the leader of the recovery. Industrial production data for March will be posted today at 9:15 ET with the Philadelphia Fed's manufacturing report for April out at 10:00 ET

Of course none of the former special circumstances affect manufacturing, only unemployment, right? Because we know how much we manufacture in the U.S., heck, everyone I know works in manufacturing, isn’t that true for you?

What? It’s not? Even though our population has more than doubled, America employs the same number of people in manufacturing than we did in 1942:

What is that, about 11.5 million people, or only 3.7% of our population. For comparison, there are 39 million people in this country on FOODSTAMPS! That’s 12.8% of our population!

That's 3.4 times as many on food stamps as work to manufacture something. Please take the time to let that one sink in.

Below is a chart of workers in the financial industry:

Amazingly, it’s still less than the number in manufacturing, but barely, coming in at 7.6 million. Now look back on that chart to the year 1942 and you’ll find that at that time it took only 1.2 million financial industry workers to support the same number of people working in manufacturing. Today the ratio of financial workers to manufacturing workers is more than 6.3 times higher! Conclude from that what you want, I say it’s messed up as obviously our employees are the world’s purveyors of debt and that most of the world’s manufacturing occurs elsewhere.

Like China that just reported their annual growth to be 11.9% in the past year! Industrial growth? 22%, LOL! Riiight… let me just say that for those who don’t recognize a bubble or false statistics, one’s biting you in the ass right now, feel it? You will.

Treasury International Capital flows (TIC) for February was barely positive, coming in with a net $9 billion, but foreign official flows were negative $21 billion. Remember, to be balanced, we need inflows that are equal to our trade deficit which is running in the $40 billion per month range today. Overall this is another very weak report, and it is a report that, like bids at auction, is hard to know how real the numbers are. Auditing the Fed, the Treasury, the Primary Dealers, their surrogates, the IMF, and all foreign central banks would be the only way to really know. Alternatively we could just get rid of all of them and start over. Now there’s an idea.

TIC Flows February

Let’s turn back to the markets where you can clearly see a nice and very unbelievable climb over the past 3 months as well as over the past year. Historic climb and historic divergences.

Yesterday produced a confluence of readings that should not be ignored. Remember, we just produced a market sell signal on the VIX. Yesterday we had 611 new 52 week highs on the NYSE, from what I can gather that’s an all time record, surpassing the 601 new highs that occurred just this past March. That is an extreme. Numbers that lopsided have always produced reversals – will this be an exception? Are we now living in an alternative universe? I don’t think so, the Kool-Aid tastes the same.

Below is a chart of the CBOE Total Put/Call Ratio over the past 3 years. It landed on a the lowest low of the past 3 years at the close yesterday, .56:

Below is a one year chart of the Put/Call Ratio to show you in more detail how the low points often correlate to tops, and the high points often correlate to market lows:

Below is a 3 year NYSE Bullish Percent chart. Not at the highs of the chart, but definitely at an extreme reading:

The volume was a little heavier yesterday, which is exactly what you see towards the end of large moves, it is a sign of capitulation. Overall volume levels are still way low, but yesterday was 124% of its 10 day average. The indices are now very close to their 200 day moving averages and that important 61.8% retrace level.

I note that the VIX is higher on the open this morning… I hope you are not a part of the heard at this point in the markets. The alignment of extreme indicators is screaming that a significant top is in or near.

Enjoy your tax day, a tradition that’s getting harder to take all the time, especially knowing how much of that effort is funneled directly into the banks. Not to worry, another 17,000 IRS employees are in the pipeline to ensure compliance. If only that last part were a joke...