Friday, April 30, 2010

Morning Update/ Market Thread 4/30

Good Morning,

Equity futures are down just a little this morning, but are picking up momentum on the downside. In a switch, the dollar is down, bonds are up, oil is higher, and gold is gunning for its old highs. Gold is breaking out of yet another small consolidation and is at 1,178 an ounce. The prior high is at $1,227, not that far away, it would appear destined to go higher.

The big release this morning is the first stab at first quarter GDP. The headline number fell from Q4’s final reading of 5.6% to 3.2%. Expectations were for 3.4%, so this is a miss. Keep in mind that this 3.2% figure is an annualized quarterly figure, the growth in the quarter was therefore measured to be .8%. Also expect downward revisions to come. Here’s Econoday’s analysis:
Highlights
This morning we got an update on how the recovery is faring for the overall economy with the initial estimate for first quarter GDP. Even though growth in output (overall GDP) slowed from the fourth quarter, the big news is that the domestic final demand component picked up significantly. Real GDP growth for the first quarter came in at an annualized 3.2 percent, following a fourth quarter surge of 5.6 percent. Analysts had expected a first quarter gain of 3.4 percent.

While the inventory component was the driver behind fourth quarter growth, we got help in the first quarter from consumers and business investment (equipment purchases) as real final sales to domestic purchasers rose an improved 2.2 percent in the first quarter after an anemic 1.4 percent rise the period before. Although inventories rose, the "swing" in inventories was less positive than the drop in destocking the fourth quarter. Yes, sharply less negative adds more to GDP than slightly more positive-the "swing" is what matters. Net exports, however, worsened on a slowing in exports and continued increase in imports.

Year-on-year, real GDP advanced to 2.5 percent from 0.1 percent in the fourth quarter.

Inflation is still soft as the GDP price index rose an annualized 0.9 percent, following a 0.5 percent increase in the fourth quarter. The latest number essentially matched the consensus forecast for a 1.0 percent increase in the overall price index.

Although overall growth slowed in the first quarter, the composition shifted to a stronger position in terms of domestic demand. The change is gradual but in the right direction. Equity futures slipped on the release.
My take is that our GDP does not reflect reality at all. I believe that the deflator numbers do not reflect reality and that a great deal of our nation’s “productivity” (measured in dollars) is simply paper fluff engineered by our criminal financial industry using false accounting. Enron times a million.

Yes, it’s time for a do-over! Freedom’s Vision would do it.

For those who are into the details, here’s the entire GDP report from the BEA:

GDP Q1 2010

The Employment Cost Index rose .6% in the past quarter (1.7% year over year), which is greater than the forecast for a quarterly rise of .4%. The rise is mostly due to higher benefit costs. The difference in the rate of WAGE growth to the rate of growth in other costs, and in particular DEBT, is a guarantee for running into the inability to service the debt – debt saturation eventually occurs, it’s just math.
Highlights
A jump in benefit costs fed a surprising jump in the employment cost index that is definitely not wanted by policy makers. The ECI rose a quarter-to-quarter 0.6 percent in the first quarter for the highest rate of the recovery and compared with a 0.4 percent rise in the fourth quarter. The year-on-year rate rose to 1.7 percent, 2 tenths above the fourth-quarter pace.

Benefit costs jumped 1.1 percent in the first quarter more than doubling the fourth quarter's 0.5 percent rate. The year-on-year rate for benefit costs is at plus 2.2 percent, the highest rate since second-quarter 2007 and far above the prior quarter's plus 1.5 percent rate. Questions over how the implementation of healthcare reform will play out adds special uncertainty to the outlook for benefit costs.

Wages & salaries remain tame at plus 0.4 percent, down 1 tenth in the first quarter in the only headline that Federal Reserve officials will welcome. The year-on-year rate for this reading is unchanged at plus 1.5 percent.

A base effect is at play in this report as the fourth quarter marked a deep low for this series. But the gains can't be ignored and will raise doubts over how extended the Fed's zero-rate policy will prove to be.



Well, let’s see… how did holding rates too low for too long work out last time? What’s the definition of insanity? What one has to keep in mind is that the Fed does not work for the people of the United States. They work for the Central Banks. Once you understand WHO they are working for, then it all makes perfect sense. This is why WHO controls the money is so important and why the “FED” must be disbanded.

It would seem that someone else is finally starting to wake up – for what reason and motive is not clear, I don’t take anything at face value anymore. All I know is that Goldman stock just cratered $10 a share this morning as this was released:
Feds begin criminal probe into Goldman - reports

NEW YORK (CNNMoney.com) -- Federal prosecutors are reportedly looking into whether Goldman Sachs has committed securities fraud.

The Securities and Exchange Committee referred its investigation of Goldman to The Justice Department for possible criminal prosecution, according to several media reports, including one by the Wall Street Journal, Thursday night. The reports cited sources familiar with the situation.

Goldman has been accused by Levin's committee of betting aggressively against the nation's housing market, making as much as $3.7 billion in the process.

Documents released by the committee this week also demonstrated that Goldman may have been engaging in other questionable practices.

Goldman has maintained that it too got hit when the U.S. housing market collapsed, losing some $1.2 billion in 2007 and 2008. It has also rejected charges that it bet against American homeowners or against its own clients.

Rather, the company has maintained it merely was trying to insulate itself from other large bets it made on residential real estate.

"We didn't have a massive short against the housing market and we certainly did not bet against our clients," said Blankfein at the hearing Tuesday.

Fabrice Tourre, the 31-year-old French trader who allegedly helped broker the investment deal that is the subject of the SEC's civil lawsuit, also appeared Tuesday. He said he planned to fight the charges brought by the federal government.

Goldman has placed the London-based Tourre on paid leave indefinitely and stripped him of some of his credentials with British regulators, however.
Goldman has absolutely committed securities fraud. All that’s required to commit fraud is to materially misrepresent your product or to fail to disclose meaningful positions. Goldman is not the only Investment bank guilty of this fraud, they are all guilty of it. That leaves one to wonder why the SEC is taking action now… it feels like public manipulation to me and I’m certain the real motivations are more complex. The market is going to have a difficult time gaining ground with Goldman shares plummeting.

The Chicago PMI was just released at 63.8, a reading of 60 was expected.

The Greek debt crisis gets “solved” just about every day. And every day it seems the amount of money needed balloons:
April 30 (Bloomberg) -- Greek Prime Minister George Papandreou said the nation’s survival was at stake in talks to win a potential $159 billion European Union-led bailout that included budget cuts denounced by unions as “savage.”

“Now, today, immediately, what is at stake is the survival of the nation,” Papandreou said in parliament in Athens today. “This is the ‘red line.’” He said talks with the EU and International Monetary Fund were “tough,” with his government resisting “not in the street with rocks, but in negotiations.”
Oh sure, piling an additional $14,500 for every man, woman, and child of Greece’s 11 million people will surely make the current unserviceable debt all better, won’t it? What a joke! The people rising up? They absolutely should be.

The same exact thing IS happening here. Only ours is more stealth due to our ability to devalue our dollar. That game, however, is getting more difficult for us by the day as well. As soon as the “austerity” measures begin to set in, even the fluffed up false GDP growth will turn negative again. The real desperate acts will come as we fall during the next cycle.

Yesterday’s ramp job peaked out at the 78.6% retrace level. The VIX did generate a market buy signal by closing inside of the upper Bollinger band.



Remember, this signal is a leading signal and it is very reliable. You can see that the Bollingers are now spread wide, I would not look for another VIX signal for quite some time. That said, events can always override technical indications, if Goldman breaks beneath $148 a share, for example, the market will have a difficult time making progress. Tops are a process, they take time.

As I type, Goldman shares just landed on the $148 level. A break beneath $148 will find limited support at $140, but then there’s really nothing all the way back down to $100. That would not be particularly helpful to the XLF or to the broader market:



Couldn’t happen to a nicer group of guys, I’m sure a lot of this theatre is playing off that sentiment. Sure, there are a lot of good songs I could choose to pile on top of Goldman, they certainly deserve it. Instead of that, though, here’s one for the masses who believe in the growth story propagated by all the central bankers, our administration, the BEA, and our media…

Styx – Fooling Yourself: