Wednesday, September 15, 2010

Morning Update/ Market Thread 9/15

Good Morning,

Equity futures are lower this morning, bonds are also lower, the dollar is higher, oil is dramatically lower, gold is slightly lower after setting a new all-time record high yesterday, and intervention in the Yen overnight caused it to dramatically lose value against the dollar.

Yesterday I showed you charts indicating that the action in the Yen was important to watch, and I showed you the trend line where support was likely. EXACTLY on that trendline, Japan rolled out an announcement that they were taking action to devalue the Yen – currency manipulation:

YEN Hourly:

YEN Weekly:

Later it was learned that the Bank of Japan was working in concert with officials overseas – in other words, the currency manipulators are Ben Bernanke and little Timothy Geithner, the same people who deride China for manipulating their currency.

Here’s the deal that you can take to the central bank – currency manipulation NEVER works! In fact, it will have the opposite effect over time. Once the shorts are destroyed (this will cause deleveraging elsewhere) the currency will begin to sink again (Yen rising due to carry trade unwind) and any intervention will have to be larger and larger until the shorts win, and win they will. Currency manipulation is pathetic, it is the result of a society that has saturated itself with DEBT and has allowed massive distortions to form by supporting gambling in international markets. Those distortions will seek to balance themselves.

This morning the Empire State Manufacturing Index (not a very sharp tool) fell from its prior reading of 7.1 to 4.14. This was worse than the 5.0 expected. It is showing sharp deceleration, and while it did not yet turn negative, the Philly Fed has already and we’ll get another update on it tomorrow. Here’s Econospin, no double-dip in sight, LOL:
Business activity in the New York manufacturing region has firmed slightly so far in September, the latest report to point away from a double dip. The Empire State Index came in at 4.14, a reading over zero to indicate month-to-month growth but at a slightly slower pace of growth than August's 7.10 reading. A rise in new orders is clearly good news, at 4.33 vs. the minus 2.71 that indicated month-to-month contraction in August. Employment is also a positive, at 14.93 to indicate strong month-to-month labor growth and at a slightly higher rate than August's 14.29.

Other readings are less positive. Unfilled orders are extending their run of contraction, at minus 5.97 in September. Draws in unfilled orders do not point to extending gains for employment. The six-month outlook for unfilled orders moved into the negative column while employment plans and new order expectations slowed.

Today's report is positive but only marginally positive. Tomorrow's September report from the Philly Fed will be very closely watched given its surprise contraction in August.

No, actually a rise in orders is not a good thing, not when inventories are growing rapidly as was reported yesterday. Those inventory builds are most likely forced which means that demand is too low for the amount of goods ordered. In other words, businesses are once again being suckered in by morons in our government and in the economic voodoo profession. Just remember that’s its hard to get a garden to grow in the middle of winter, it’s not a time to be planting seeds. That’s not being negative, that’s just reality.

The worthless MBA Purchase Applications Index fell .4% in the prior week, but the refinance index plummeted 10.8%, leading to an overall index loss of 8.9%. Gee, Econopray doesn’t seem to have much to say on that one today:
Mortgage applications to purchase homes edged 0.4 percent lower in the September 10 week while applications to refinance existing mortgages fell 10.8 percent. The results are adjusted for the Labor Day shortened week. Rates are very low which point to increasing mortgage activity ahead. The average 30-year mortgage fell three basis points to 4.47 percent. Next data on the housing sector will be the Housing Market Index on Monday.

“Rates are very low which point to increasing mortgage activity ahead?” What planet are they living on? The Fed has lowered rates as low as they can go, they have bought up nearly every mortgage in the U.S., and they have spent literally TRILLIONS to artificially buy rates down (talk about manipulation)! Each step of the way the people who could refinance did. Now we are at the end of the line. Sorry, but it doesn’t get lower than zero, the only way to get mortgages lower now is to start cutting out the middle men (bankers) and lend directly to the people at next to nothing. That would be a disaster of monumental proportions, as if it’s not bad enough already. Yet after living through the past couple of years, I don’t put it past them.

Import and Export prices came in a little hotter than the month prior for August, here’s Econoday:
Import prices rose a sizable 0.6 percent in August reflecting higher costs for food products and petroleum products. Foods, feeds & beverages jumped a very steep 2.2 percent in the month, though the gain here is not part of a trend. Petroleum prices jumped 2.1 percent, and here too the gain is isolated given steep contractions back in June and May. The bottom line is finished goods where prices have been stable: consumer goods up 0.2 percent following two prior months of 0.2 percent decreases; capital goods up 0.2 percent following two months of 0.1 percent declines.

The export side shows a 0.8 percent gain, again not part of a trend given a 0.2 percent decline in July and a 0.7 percent decline in June. Foods, feeds & beverages also show pressure on the export side, up 4.3 percent in the month following small declines in July and June. Finished goods show no change for capital goods and a 0.3 percent decline for consumer goods.

Country data show a 0.2 percent price rise for goods imported from Japan, not significant but newsworthy given Japanese intervention overnight to stem the rise in the yen. Though deflation bugs are making noise, prices are basically stable right now. Small healthy gains are expected for both tomorrow's producer price report and Friday's consumer price report.

The hot money rotation produced higher prices in food and energy. As noted, this is not a trend, it’s so far just a short term pop. The forces of deflation are still fighting what has now become three POMO’s a week and before we know it, we’ll likely see three POMO’s a day. Did I mention the morons and their intervention? Respect them? No. Not an adult to be seen, only $212 Billion+ increases in governmental debt per month as far as the eye can see.

Industrial Production fell from the prior month’s 1.0% rise to a .2% rise, this was inline with expectations, but again shows slowing momentum in what are not leading indicators. Remember, the ECRI is leading and pointed to negative growth quite some time ago, still residing below -10%. The Capacity Utilization Rate fell to only 74.7%, this is down from 74.8, and in the wrong direction from expectations looking for an increase to 74.9.

Turning back to the markets, prices have now fallen below the redrawn rising wedge lower boundary that can be seen on the following 10 minute chart:

Yesterday prices failed to get over the 1030 resistance level once again. McHugh, looking at the proportionality of the waves as I pointed out earlier (2.5 months for wave 1, 2.5 months for wave 2), changed his primary count to this wave being wave c of wave 2 of wave C (wave 1 bottoming on July the 1st and a,b,c for wave 2 since). That means that he now believes we still have not begun wave 3, that was the alternate count I’ve been following. In truth, it can still be either way as we have yet to rise above 1131. Regardless, the next wave will be down and it will likely be wave 3 – it may have already started, not that I’m ringing a bell or anything…