Wednesday, April 21, 2010

Morning Update/ Market Thread 4/21

Good Morning,

Equity futures are close to even following a slew of earnings reports overnight (market moving higher after the open). The dollar made a relatively strong move higher overnight, the Euro is down and is poking below upslopping support. Long bonds are shooting higher, in the direction that usually means money is driving away from equities. Both oil and gold are roughly flat.

The completely wild and worthless MBA Purchase Application Index was reported as reversing last week’s 10.5% plunge by jumping 10.1% in the past week! Riiighht, a 20% swing in one week? Give me a break. This is exactly the type of “economic” report that shows how badly twisted and distorted the data has become. They do not give any base to measure against, only percentage change – worthless. Nevertheless, people watch it due to a lack of any real or meaningful data, so here’s Econoday’s take on the weather and the never-ending end of the housing tax credit which is supposedly gone at the end of this month, this time for real…
The approaching deadline for second-round stimulus is giving a big lift to purchase applications which jumped 10.1 percent in the April 16 week. Though the latest week shows a big jump, the month-on-month comparison shows only a modest gain. A dip in interest rates gave a lift to refinancing applications which jumped 15.8 percent. The average 30-year mortgage rate fell 13 basis points in the week to 5.04 percent. The outlook for the housing sector, at least for April, is improving though questions remain about the mid-year outlook. Existing home sales will be posted on Thursday with new home sales out Friday.
Look for the housing data to substantially worsen by about the July timeframe.

Apple produced a terrific first quarter with great numbers, good for them. Yahoo reported and it was not liked by the market as they are losing market share. WFC reported a $2.5 billion profit, but is selling on their release, MS swung to a profit and is gaining. Boeing profit dropped 15% yet they are higher pre-market.

In a humorous turn of events, Bloomberg is reporting that it is AIG who insures Goldman’s Board of Directors against lawsuits.
AIG Said to Insure Goldman Sachs’s Board Against Investor Suits

April 20 (Bloomberg) -- American International Group Inc., the financial firm rescued by the U.S., is the lead insurer of Goldman Sachs Group Inc.’s board against shareholder lawsuits, said a person with knowledge of the policy.

AIG is among firms that sold so-called Side A directors and officers’ coverage to the New York-based bank, said the person, who declined to be identified because details of the policy are private. Goldman Sachs was sued last week by the Securities and Exchange Commission, which claimed it misled investors in 2007.
Gee, yet another reason why Hank Paulson would ensure that AIG stays afloat? Just another example of their being no adults in the room.

Hank Paulson went so far outside the rule of law while he was in Treasury that now the Pew Research Center survey shows that only 22% of Americans trust government. That means that nearly 80% of Americans no longer trust government. This is a complete reversal from when Eisenhower was in office and these surveys were first taken, at that time it was 73% of Americans trusted government.

Pew Research

Those who follow Martin Armstrong’s writing will know that this swing in sentiment was forecast by him as a part of the longer term economic cycle where trust swings from the public sector and back to the private sector. What may be different in this cycle is that I’m not sure the trust is really left in the private sector either. Who do you trust at this point?

If you haven’t seen Bill Black’s opening statement at the House Financial Services hearing on Lehman Brothers failure, you should take a couple of minutes to do so:

Take a mental snapshot of Mr. Black, that’s what an ADULT acts like. There have been no adults in government for at least the past decade. By letting the children run so wild for so long we are now at a point where financial reform simply is not enough. You can’t invoke financial reform with teeth or you crater a paper bubble economy.

Financial reform at this point will not work to save the economy in the long term, that’s because the root of the problem is not financial, it is monetary. Yes, we have severe financial problems still, but those are symptoms of the pressure built up by the never ending growth mantra caused by backing our money with debt. There actually is no money, it is all debt as it all came into being as somebody else’s liability.

The move higher yesterday was on lower volume once again. While the internals improved over Monday’s, there was a divergence seen in the number of issues over their 10 and 30 day moving averages, as they both fell against rising price.

Once again a normally very reliable bearish H&S pattern blows up. Prior to the rally over the past year, that was a very rare occurrence. The slope of the recent rise is dangerously steep. Parabolic moves tend to come in three phases where the slope begins gradually, then in the middle is slightly steeper, and in the final phase produces a more vertical blow off. If you go back and look, you will find these parabolic moves all over the place. It’s typical that there is a break of the uptrend just prior to shifting gears into the next move. If that’s happening here, we may be about to enter a near vertical move. That would be very dangerous in both direction if so as it is impossible to know where such moves end, and when they do end they end quite suddenly. This discussion so far is just supposition as we have not yet even made new highs.

It looks like we may be making those new highs today and the VIX is back below 16 once again and in the complacent zone. It’s been a little over a week since we received the market sell signal from the VIX, I would still be cautious and not assume that the risk to the market has gone away. Those extreme readings that went along with it (611 new highs & record low put/call) are usually signs that a significant top is near. If we make new highs in the indices today, then we’ll have to watch the slope of the rise to see if we’re entering a parabolic type of move.

David Bowie - Space Oddity: