Thursday, September 30, 2010

Morning Update/ Market Thread 9/30

Good Morning,

Here we are, the end of September and the market has done the opposite of its seasonal pattern, thus drawing in almost no one real, and that’s because it isn’t real, it has been accomplished solely by creating fake digits and using those fake digits to create a fake market. Besides the outright admission of market pumping POMOs, we know it’s fake because the dollar has lost 5.7% over the past month, gold has risen $73 an ounce (5.5%), volumes are down dramatically, and there have been phony gaps in the charts all the way up.

This morning the market is higher on the back of more massaged data – as it all has become. The dollar is lower some more, bonds are higher some more – no wait, lower, oil is making another run at the economy killing $80 mark, while gold soars onto new all-time highs once again. Nice.

The final revision of Q2 GDP was monkied up to 1.7% from 1.6% (quarterly number annualized). Unfortunately for those buying into this number, the rise was based primarily on increasing inventories. That is not a good thing, it is yet another sign of low demand. Here’s Econoday:
GDP for the second quarter was revised up incrementally – but the added growth was not where you really wanted it. Second quarter GDP growth was revised up to 1.7 percent annualized from 1.6 percent in the second revision. The third estimate for the second quarter came in just above the market forecast for 1.6 percent.

The upward revision was primarily due to a moderately higher estimate for inventories. This added boost was relatively minor, however. Partially offsetting were downward revisions mainly to net exports and government purchases. Other revisions were marginal.

Real final sales to domestic purchasers were unrevised at up 4.3 percent from the prior estimate while final sales of domestic product (adds in net exports) were tapped down to 0.9 percent annualized from the second estimate of 1.0 percent.

On the inflation front, the GDP price index was unrevised at up 1.9 percent annualized. Analysts had projected 1.9 percent for the third estimate.

Just as a reminder, the GDP number is as real as the digits on the Fed balance sheet – in other words it’s not real. Its “growth” is based on financial engineering and on playing with the way inflation is measured – GDP is grossly overstated. The trend for GDP the past three quarters is down, and quarter 2 is now ancient history. Now that the third quarter is over, I believe we’re currently close to negative. Of course when we get the first Q3 report it won’t reflect that, but revisions will I believe.

Jobless Claims for the prior week came in at a still shamefull 453,000. The prior week was 465,000 (revised up to 469k) and the consensus was looking for 459,000. Like we haven’t been here before, Econoday shamelessly calls a 453k print “recovering:”
You wouldn't know it from consumer confidence readings, but the labor market appears to be recovering, not sinking. Initial jobless claims fell for the fourth straight week, down 16,000 in the September 25 week to 453,000 (prior week revised to 469,000). The four-week average is down for a fifth straight week, at 458,000 which is down a convincing 30,000 from a month ago.

Continuing claims have been no better than steady. Continuing claims fell 83,000 in data for the September 18 week to 4.457 million. The four-week average of 4.527 million is slightly higher than the month-ago reading. The unemployment rate for insured workers edged one tenth lower to 3.5 percent.

The dip in initial claims points to improvement for monthly employment data. This report will offer strength for the day's financial markets.

I love the game of revise the number higher, then compare it to the next trumped up number in the series and say that it improved for the 5th straight week! No, actually we’ve been in the 450k to 500k range for the entire year, take a look at the chart. This is so far from job creation or “recovery” that it’s not even funny, it’s certainly no joke for the millions who are out of work or who are losing their homes. Where’s the jobs creation? It’s not in this report, that’s for certain.

The Chicago PMI is released at 9:45 Eastern this morning.

Europe is a complete disaster. Like the U.S. it’s a dyke that’s springing leaks all over creation. Spain was downgraded by Moody’s this morning, while Ireland steps into rescue two of its failing (ed) banks with money from who knows where, since they claim they don’t need outside help to do it. Sure, a bankrupt country bails out its own bankrupt banks, its party time, spreads are coming in!

Japan spent 4.6 trillion Yen to force the value of the Yen lower. It lasted for a little more than a week and now it's almost entirely gone. Talk of more has had zero effect. Talk about the theatre of the absurd and the obscene, it’s a comedy and a tragedy all in one play:

The news flow of bizarre happenings in our own administration and suggestions to deal with our own economic problems seems surreal. Trade wars starting up, currency wars in progress, POMOs out the whazzoo, QE2, rats bailing on the administration, a government that owns 90% of it’s mortgages - it’s a bizarre freak show, and I have yet to spot any sign of REAL economic life or of an adult leader.

The markets meanwhile continue to do their dollar beat-down drift-up. Yesterday produced a small change in the McClelland Oscillator, so the spring is wound to expect a large move today which appears to be up.

Yesterday the DOW finished at the bottom of a rising wedge. McHugh believes it needs one thrust higher from there, we are certainly getting that this morning. The wedge is now well defined as you can see in the 10 minute chart of the DOW below, however, in the SPX it looks a little bit more like a flat topped triangle which can be read bullishly:

Obviously the market had not sucked in enough money or people, the bears have been too eager to pounce. Yet the VIX continued to rise yesterday as it moved up the wick of the previous day’s inverted hammer:

Today is yet another Bradley Model turn date – will it mark a top, or will it have no effect? If the DOW’s rising wedge is valid, and it may not be, then today could be it. But but we’ve been here before shakin' the bears, haven’t we?