Tuesday, September 14, 2010

Morning Update/ Market Thread 9/14

Good Morning,

Equity futures are slightly lower this morning with bonds rising in price. The dollar is flat overall, up slightly against the Euro, but down against the Yen. Oil is down slightly and gold is roaring higher.

The development in the Yen is the most important thing I see across the board this morning. I have been monitoring a small triangle on the daily chart and this morning it has decisively broken that triangle to the down side (strengthening Yen). This is due largely to the unwinding of the Yen carry trade, it represents deleveraging:

Looking at the monthly chart, the Yen is strengthening (falling on the chart) in a descending wedge and it has landed squarely on the bottom of that descending wedge. That means that it could bounce from here, or it could break it. Descending wedges are often reversals, but they can also lead to waterfall events as price cascade lower out of them. This is important as much rests on this relationship:

Another important development is occurring in the long bond. Yesterday I showed that it was testing support, well it bounced dramatically yesterday and is now looking like it may have entered a new wave higher. Yesterday’s action did not support the mild rise in equity prices, nor does this morning’s rise:

TLT, the 20 year bond fund, also descended to the bottom of its rising channel and bounced, producing a bullish reversal for TLT and the long bond:

Overall Retail Sales came in flat month to month for August at .4%, this is slightly better than the .3% expected. Less auto sales, the figure supposedly grew .6%, which was also better than the .4% expected. Initial reaction was positive, but then the news was quickly sold with bond prices rising. Here’s Econopray:
Retail sales topped expectations for August with components more positive than not. Overall retail sales in August continued to improve, gaining 0.4 percent, following a 0.3 percent rebound in July. The latest number topped the median forecast for a 0.3 percent advance. Excluding autos, sales increased 0.6 percent, following a 0.1 percent rise in July. Analysts had projected a 0.4 percent rise for the ex-auto number. Sales excluding autos and gasoline jumped 0.5 percent, following a 0.1 percent dip in July. Today's report shows that consumers are still spending. The August numbers are a little better than expected but still a moderate pace. For those wondering if the boost was related to back to school spending, the numbers are seasonally adjusted and largely take that factor into account.

The rebound in July was led by a 1.9 percent gain in gasoline station sales with food & beverages up 1.3 percent and clothing up 1.2 percent. Also showing increases were health & personal care, sporting goods & hobby stores, general merchandise, nonstore retailers, and food services & drinking places.

Weakness was led by a 1.1 percent fall in electronics & appliances and a 0.9 percent decline in miscellaneous stores. Motor vehicle & parts dealers decreased 0.7 percent while furniture & home furnishings slipped 0.5 percent. Building materials and garden equipment sales were flat.

Overall retail sales on a year-ago basis in August slowed to 3.6 percent from 5.4 percent the month before. Excluding motor vehicles, the year-on-year rate slipped to 4.8 percent from 5.0 percent in July.

Today's report adds ammunition to the argument that there will be no double dip. A consumer sector that is posting moderate gains in spending will likely support continued modest growth in the recovery. It's certainly not gangbusters, but the news is welcome relief for those worried about the economy becoming too sluggish or turning negative again.

There it is again, “there will be no double dip.” What wishful thinking. Gee, where have we heard that before? Oh yeah, it was yesterday… "We will not have a double-dip recession at all," this, according to Warren Buffett whose economic prowess is only exceeded by that of Ben Bernanke. Disrespect intended, as both are nothing but shills in support of their own interests. Buffett has something to sell you, I guarantee you that. I can also say that there will be no double dip, but that is because there was never a real “recovery” to begin with.

Why is it that very few public figures have been able to see (or at least acknowledge) the problems for what they are, yet many average people now do? Very few, like me, have been pointing to reality for years, yet few listen. The bias, manipulation, spin, profiteering, and outright FRAUD are plain as day to me.

Returning to the Retail Sales report, once again this is a report that is riddled with bias, such as survivor bias. It is based upon same store sales and NOT adjusted for stores that have closed, of which there are many. When a store closes, what sales it had wind up in another store, one that hasn’t folded. That alone makes this report next to worthless during times of contraction or during times of expansion. And thus we turn to tax receipts where just last evening I listened to Washington State’s Governor, Christine Gregoire, describe our state’s $3.3 billion deficit and how it is EXPANDING, not contracting due to continued and accelerating short falls in tax receipts! Washington State has no income tax, just SALES tax. So no, the consumer is most definitely not spending and this “retail sales” report is bunk as it always has been.

But that’s just deceptive, let’s get back to the FRAUD. This time I’ll simply highlight what I’ve written about over and over, but it’s been awhile, and that is our own government, the U.S. Treasury, who is defrauding the public for who it is supposed to work. Yesterday the Treasury Department released the budget deficit for August as being $91 Billion. As Karl Denninger was first to point out, the nation’s DEBT grew not by the already horrific $91 Billion figure, but by 2.3 TIMES that amount, a zombie terrifying $212 Billion! Just for one month! Is it okay to annualize that figure like they do for GDP? It is? Okay, that equals $2.544 TRILLION in new debt for just one year. Can you say, “exponential?” I thought you could.

So, how does the U.S. Treasury get away with saying that the budget deficit is only 43% of that which is reality? It’s simple, it’s because we let them. Unfortunately, the U.S. Treasury, headed by little Timothy Geithner is acting as a subsidiary of the “FED” which is actually an organization that is owned, and controlled, by the private banks. It is completely fair to call this accounting FRAUD, and it is completely fair to say that the Treasury Department is no longer working on behalf of the people of the United States.

What’s most important is WHO controls the power of money creation. It either works for all the people or for a few elites. Right now there is no question that it is working for a few elites, that’s by design.

Business Inventory data is released at 10 Eastern.

The rise yesterday took prices slightly above the 200 day moving averages. That is a bullish development, but we’ve been here several times before only to watch it fail. The NDX has left gaps all over the charts as it rises in some LSD laced Apple twisted flashback of 1999. It also broke the downtrend line from the April peak. The DOW, however, rose right to that downtrend line and was stopped:

Volume on yesterday’s rise was only slightly higher than the record low volumes encountered last week (lowest weekly volume of the year). SPX 1031 is still resistance to get over, until that happens, the count is still the same. McHugh has picked up on the sloppy inverse H&S pattern with the SPX 1010 low as the “head,” and the neckline at 1130ish. A break higher to fulfill this pattern would produce a 1212 target. It is sloppy and it is not verified. He and I both give it lower odds of fulfillment than the already verified, larger, and well formed H&S pattern that produced the 860ish target. It gives the bulls something to hang their hats on… I believe they will be disappointed once again. Keep and eye on the Yen and on bonds, while definitely ignoring the pontifications of those who wish to distribute to you.