Friday, May 7, 2010

Morning Update/ Market Thread 5/7

Good Morning Crash Survivors,

Equity futures are flat to lower this morning as the dust settles from yesterday. The Employment situation report just released the headline numbers of supposedly 290,000 new jobs, but the unemployment rate jumped to 9.9%. Riiiight. Guess the BLS must have had a “fat finger” when they were adding up jobs, but we’ll take a look at it. Here's the action from yesterday and overnight:

The Dollar, as I was pointing out yesterday, reached its upper channel boundary and is lower this morning as you would expect. The Euro hit my 1.26 target at the bottom of its channel and is now bouncing. Should they fail to bounce and continue outside of their channels, look out! Daily charts of both are below:

Bonds are down after rising very steeply yesterday, interest rates falling. Oil is up slightly, rising just above important support, while gold is down slightly after just missing a new all time high yesterday. That trade is all about confidence, and boy do I ever have less of it by the hour, you should be feeling the same way, the latest unemployment numbers are NOT helping in that regard.

Here’s the entire Employment Report from the BLS:

Employment April

The obvious first question is why did the unemployment rate increase and yet more jobs were supposedly created? That is answered right up front as the household survey increased the number of people in the workforce by a much larger number than people who got jobs. This is “hidden inventory” of workers if you will, the same type of number fudging that has been occurring in the housing market! If a bounce in activity occurs, then the people who were standing by come out of the woodwork. In this case, suspicious Nate could make the case that the prior numbers were intentionally lowered to make the rate appear better than it actually was. No, I do not trust or have confidence in any of these numbers. Regardless, here’s how the BLS explains it:
In April, the civilian labor force participation rate increased by 0.3 percentage point to 65.2 percent, as the size of the labor force rose by 805,000. Since December, the participation rate has increased by 0.6 percentage point. The employment-population ratio rose to 58.8 percent over the month and has increased by 0.6 percentage point since December.
And here’s how Econoday, who has never questioned a report in their lives, spins it:
Today's jobs report was unexpectedly strong-including after discounting Census jobs. And a rise in the unemployment rate actually points to optimism on the part of workers. Payroll jobs in April grew a healthy 290,000, following a revised 230,000 advance in March, and 39,000 rise in February. April's boost topped the market estimate for a 200,000 gain. Net combined revisions for March and February were up a 121,000-including turning February from negative to positive. But the key number is private payrolls as Census hiring added 66,000 to April's jobs. Private nonfarm employment increased 231,000, following a 174,000 rise in March.

Payroll gains were widespread, including increases in goods-producing and service-providing sectors.

Wage inflation is nonexistent currently but it is hard to tell initially if weakness is related to shifts in the composition of hiring or not but that likely partially explains the weakness. Average hourly earnings were flat in April, following a 0.1 percent dip in March. Analysts had expected a 0.2 percent boost.

Not only is hiring improving but the workweek. The average workweek for all workers firmed to 34.1 hours from 34.0 hours in March. The consensus had projected 34.0 hours. The traditional series for production and nonsupervisory workers improved to 33.4 hours in April from 33.3 the prior month.

From the household survey, the unemployment rate rose to 9.9 percent from 9.7 percent in February, coming in above the consensus estimate for 9.6 percent. But the jump was due to an 805,000 surge in the labor force. April household employment actually jumped 550,000. Basically, discouraged workers see hope of employment and have jumped back into the labor force.

The bottom line is that the U.S. labor market is showing notable improvement. This could help the consumer sector regain optimism and strengthen the overall recovery. Equity futures rose on the news.

Actually, equity futures tried to spike on the news but almost instantly fell back. Give me a break, you bet, crashing markets and unbelievable statistics are going to make the “consumer” regain optimism. Keep hoping.

First of all, this number of new jobs is the highest number of jobs reported in the past four years, yet it is barely at the rate necessary to keep up with population growth. Secondly, what types of jobs are being created? Temporary census workers? Burger flippers? Financial engineers? Yes, it would appear that there are increases among the “professions” and construction, but those increases are still small. And thirdly, ZeroHedge is reporting that 188,000 of those "jobs" were created by the BLS's "Birth/Death" model.

Taking a look at the Alternate tables we see that U-6, the statistic most closely resembling the way the statistic was measured over time, when not seasonally adjusted fell to 16.6%, but that seasonally adjusted it rose to 17.1%:

According to John Williams at Shadow Stats, the real unemployment rate is actually 22%!

Chart of U.S. Unemployment

Just remember that our government has spent literally trillions “creating” those jobs, but what they don’t get is that because of their debt backed money ways, they have reached saturation. The more debt they throw at the economy now, the more jobs that will ultimately wind up being lost as debt/money losses its velocity and more of income must go to service debt. These debts are so huge that confidence is being lost around the world. Bailing out the bankers instead of the people was a catastrophic mistake, in the end I believe it’s actually a mistake that will provoke action against the bankers and against the way we back our money with debt. In that regard, it is probably good for humanity to go through it and learn the lessons.

As I’m typing this out, the futures just turned negative – fudged numbers do not instill confidence, they better start creating true transparency if they really want to calm the markets.

So, was it a “fat finger” mistake that produced the largest point drop in NYSE history yesterday? NO. Here’s the CEO of the exchange, Duncan Neiderauer, who explains how his exchange is different:

Sorry for the commercial.

Note that he didn’t address quant trading. Here’s my take… there is no reason in the world to ever allow computers to execute trades, they do not perform a market function that benefits society. In fact, they do create risk. They also give an advantage to those who have the money and wherewithal to implement them, leading to a concentration of wealth, and limiting the number of real players in the market. Therefore, they should not be allowed – period. Dark pools? Forget it.

The market place has turned into a casino, one in which the functions of the market have been forgotten.

The decline yesterday was very serious even before the crash. This was on concerns about Greece and about contagion. Sorry, the contagion already occurred when the central bankers pressed their debt and derivatives around the globe – too late.

Then comes in Harry Reid who talked up the Audit the Fed bill and said that it looked like the provisions to break up the big banks would come to vote. Now let me ask you this… who is it that owns, holds, or controls the vast majority of stock and the vast majority of trading computers? Who is it that actually produces and controls the money in this country and around the globe? The same people, the same entities? YES!

If you were being attacked and told that you were going to be broken up, what would you do? You would do the same thing that central bankers have done for centuries throughout history, you would crash the markets in a not so subtle hint to leave them alone. This is about power and control, do not be fooled.

So, what was the result of the “scary” crash?

Senate Rejects Plan to Shrink Biggest Banks in Financial Bill

May 6 (Bloomberg) -- The Senate rejected a proposal that would have required the nation’s six largest banks, including Citigroup Inc. and Bank of America Corp., to shrink in size as part of an overhaul of the U.S. financial-regulatory system.

The proposal would have turned the banks into “smaller, more manageable” institutions and forced them to maintain enough capital to cover their debts, said Senator Sherrod Brown, the Ohio Democrat who offered the amendment. The Senate voted 61-33 to reject the measure.

Lawmakers are debating Senate Banking Committee Chairman Christopher Dodd’s proposed rules overhaul, designed to prevent a repeat of the 2008 financial crisis that forced the U.S. to extend $700 billion in taxpayer funds to companies including Citigroup and Bank of America. Lawmakers are crafting rules amid voter anger over Wall Street risk-taking blamed for causing the worst economic collapse since the Great Depression.

Could it be more obvious?

Oh, and the bill to audit the Fed is having the guts pulled out of it as well. Yesterday Goldman fell below support, but as those things were announced, they bounced back up, amazing how that happens. The message is clear, LEAVE THEM ALONE, do not rock their power structure or the markets come down.

I say the markets are completely broken – take them down and take back the power of money creation! We will all continue to be held hostage until that changes!

Now let’s look at the Technical damage… first of all, it’s pretty obvious that there was a trend change and that the psychology of the market has turned, this is something I’ve been pointing out over the past few days. Yesterday’s high volume washout is typical, however, of the final wave move where sellers capitulate. This means that it’s likely that the market takes a breather and may even make some of it back, but again, if that doesn't happen, lookout. The alternative, of course, is that confidence is so badly shaken that over the next few days we see more volatility. I think that if the theory is correct that the central bankers are manipulating the market, then they may be happier for awhile as the heat on them has been momentarily turned down, we’ll see. Continue to watch GS, above $150 is bullish, below $140 is bearish.

The VIX blew sky high yesterday, jumping to above the 40 level. I captured a snapshot of it right near the peak:

It has since fallen back and is now around the 32 area, still way above the upper Bollinger.

What failed to get much attention yesterday is that there was a huge move occurring in the Yen:

That move in the Yen came out of nowhere. It has been suggested that this is capital fleeing a crashing China? We need to watch the follow on, the Yen is back down today. The Euro, of course, had been under severe pressure and had been sliding hard, something that is often seen before market crashes, the crash of 1987 being a good example.

How did the Central Bank of Japan handle this move? The same way they handle all moves, by printing up more Yen! This time it was “only” two trillion! Hey, last time it was more than 10 trillion!

BOJ Pumps 2 Trillion Yen Into System on Greek Crisis

May 7 (Bloomberg) -- The Bank of Japan said it would pump 2 trillion yen ($21.8 billion) into the financial system to help stabilize the market after the Greek debt crisis set off a plunge in stocks worldwide.

The emergency measure represents the bank’s first same-day repurchase operations since December when credit concerns at Dubai World sparked a global flight out of higher-yielding assets. The injection was the largest since December 2008, the last time the BOJ lowered its target interest rate.

“The Bank of Japan seeks to raise the sense of security in the market by providing ample funds,” said Yuichi Adachi, director of the press section of the central bank.

Money markets overseas show banks may be increasingly reluctant to lend to each other. The spread between the three- month dollar London interbank offered rate, or Libor, and the overnight indexed swap rate rose to the most in more than five months, reaching 13.4 basis points yesterday. The so-called Libor-OIS spread has increased from 6 basis points on March 15.

Demand for Dollars
Investors exchanging yen for dollar funds accepted interest payments 36 basis points below Libor for the Japanese currency, the biggest discount since November, according to data compiled by Bloomberg. The spread reached a record low of 86 basis points in February last year as the global finance crisis made it harder for Japanese companies to borrow dollars.

“While there isn’t pressure building up in Japan’s credit markets, stocks plunged so the measure was taken to prevent anxiety,” said Shinsuke Kanabu, project and research director at Central Tanshi, a Tokyo-based money market dealer and broker.

The Nikkei 225 Stock Average slid as much as 4.1 percent, after the Dow Jones Industrial Average yesterday briefly plunged 9.2 percent, the biggest intraday percentage loss since 1987. The yen declined 1.5 percent against the dollar.

“The emergency fund injection from the BOJ helped ease risk aversion, triggering selling of the yen,” said Hiroshi Maeba, deputy manager of foreign-exchange trading in Tokyo at Nomura Securities Co., Japan’s biggest securities broker. “The action here also spurred speculation that the European Central Bank and the Federal Reserve may follow suit.”

Ha, ha! So, there is panic over sovereign risk and their response is to crank out more trillions? Brilliant! Brilliant, that is, if your goal is to destroy your currency. And Japan is well on their way, in fact leading the world in that regard. The numbers are so huge that there is no mathematical way possible for Japan to ever pull out. A change of their currency system is coming too, mark my words.

The dislocations in currencies are serious business. The action in the Euro has tripped a bearish target of PARITY or 1 Euro to the dollar:

The action in the DOW has triggered a bearish target of 8,600! Want to bet that it’s wrong? Go ahead and hold:

The Nasdaq P&F produced a target that is only another 19.4% lower than here, or 25% from the recent top! Want to bet that it’s wrong? Go ahead and donate to the central bankers and their computers:

Oil? Bearish target now $66:

Support for the S&P is now 1,107 with the next lower pivot at 1,090... if they still matter (they won't in a stampede). The number of new lows on the NYSE picked up to more than 230 by the time the dust settled yesterday. This is only two weeks from the recent top! Is there anyone who still believes that this is a new bull market? If you do, you need your head examined, this type of thing does not happen in true bull markets, it only occurs in bear markets and bear market rallies. In all likelihood we have finally begun wave C down. Things get very interesting from here.

By special request and to (dis)honor the fallen from yesterday:

Freddie King - Goin' Down: