Monday, April 5, 2010

Morning Update/ Market Thread 4/5

Good Morning,

Equity futures are higher than they were on Thursday’s close, but lower than the Friday morning employment situation ramp. Below is a 60 minute chart of the DOW futures on the left and a 5 minute chart of S&P futures on the right:

The dollar is higher, bonds plummeted on Friday and are sitting right on support once again, oil is now pushing $86 a barrel and gold is higher as well.

The Senate went on recess again without approving another extension to the Emergency Unemployment benefits:

(CNN) -- Extended unemployment benefits will temporarily expire for thousands of Americans on Monday because the Senate went on its spring recess without approving a one-month deadline extension.
The extension, which had bipartisan support, would have cost about $10 billion, but a lone Republican, Sen. Tom Coburn, said no until the costs are offset.

The Oklahoma senator objected to a commonly used unanimous-consent agreement to pass the bill under emergency conditions, even if it increases the federal deficit. Coburn wants to eliminate additional government spending to pay for the bill.

"The legitimate debate is whether we borrow and steal from our kids or we get out of town and send the bill to our kids for something that we're going to consume today," Coburn said on the Senate floor.

It's the second time a Republican has blocked a so-called "emergency extension" of jobless benefits.
Kentucky Sen. Jim Bunning objected to adding to the deficit back in February.
This, after reading even more horror stories over the weekend about the condition of real Americans. Matt Taibbi wrote another good piece, Looting Main Street, well worth a read.

On Saturday the “Federal” Reserve announced an emergency meeting of the Board of Governors to be held today at 11:30 Eastern. Here is their meeting notice: Advance Notice of a Meeting under Expedited Procedures

This meeting is to, “Review and determination by the Board of Governors of the advance and discount rates to be charged by Federal Reserve Banks.”

That is different. They are going to consider raising rates because the employment situation report was so “good?” LOL, I can feel a huge mistake coming on. Real unemployment is over 20% according to Gallop, it is 22% according to John Williams and it’s over 17% according to the U6 data from our own government. Taxes are going up in spades, oil is rising to new recovery highs, both of which are anchors to the velocity of debt, rising interest rates will be another anchor to debt. Of course they never should have lowered them in the first place, but now that we’re saturated and rates have hit zero, ending the interest rate support programs AND actually raising rates will produce results that I think are going to be very, very interesting indeed.

We’ll have to see what comes out of this meeting. I note that the general and even business media did not pick this up over the weekend. Holding emergency meetings and performing intermeeting rate hikes is a sure fire way to keep the market skittish, it is not a confidence builder. However, investors need to be careful in thinking that it will produce an instant downfall in equities. Rising rates will mean falling prices for bonds. Many of the insiders are already gone. As more people begin to flee debt, they are forced to evaluate other asset classes to put their capital to work. If you go back and look at times of rising interest rates you will find that in general stocks RISE or are flat during rate raising campaigns. Stocks are falling generally during rate lowering campaigns. Below is a 3 year chart of the 10 year Treasury, TNX, with the SPX the black line in the background:

The correlation is clear over the past three years, however, if you go back further in time you will find that the correlation is not always so clear. And remember, we hit ZERO after rates descending for the past 30 years. During those 30 years, we blew the biggest credit bubble in the history of mankind and saturated the globe with debt and derivatives. Meaningfully higher rates will eventually produce negative results. Since all money is debt, if people flee from debt, this can cause our supply of money to decrease and could force governments into taking measures that are even farther outside the rule of law.

There is a turn date on April 7th according to McHugh. He is rightfully cautious about timing here, however. Obviously the markets are still dramatically overbought. There are new divergences setting in on the daily charts with prices drifting higher while RSI drifts lower. All the prior divergences remain and are historic in nature.

The economic data will be light this week. At 10 Eastern today is Pending home sales and non manufacturing ISM, it only gets lighter from there.

Hey, the boys are back to supposedly consider interest rates, that’s going to be of interest that’s for sure. If you would like to end their Reign of Terror, we have set up a “Fire the Fed” recurring donation program over at SwarmUSA. Your donation of only $3.50 per month can help us continue to spread the word and create leverage for politicians who are willing to fight back. There is much power in small numbers, please donate to the American Party PAC if you can by clicking on the “subscribe” button at the following link to “Fire the Fed,” thank you!

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Thin Lizzy - The Boys Are Back In Town: