Tuesday, October 19, 2010

Morning Update/ Market Thread 10/19

Good Morning,

Equity futures are down hard this morning following earning reports from IBM and Apple that were not wow enough for a market priced to the planet Mars. The dollar is up strongly, bonds are down, oil and gold are both also down.

Housing Starts for September came in slightly higher than August at 610,000 units, up from 598,000. The consensus was looking for 580k. All these levels are depression era levels compared to when the economy was actually growing (no, it’s not growing now, the only thing that’s growing is our propensity to yak, print money, and to falsify statistics). What’s even worse than these depression levels of starts is the fact that permits fell from 569k to only 539k, but a decrease in permits heading into the winter months is certainly not unexpected. Here’s Econospin:
Housing starts surprised on the upside while permits went in the other direction. Importantly, the single-family component is the one showing unexpected modest strength. Housing starts in September rose 0.3 percent after jumping 10.5 percent the prior month. The September annualized pace of 0.610 million units came in significantly above the market forecast for 0.580 million units and is up 4.1 percent on a year-ago basis. The boost in September was led by a 4.4 percent gain in single-family starts, following a 1.4 percent rise in August. The multifamily component dropped 9.7 percent after spiking 42.3 percent in August.

Permits fell back in the latest month, declining 5.6 percent after rebounding 2.1 percent in August. Weakness was in the multifamily component as single-family permits edged up in the latest month. Overall permits came in at an annualized rate of 0.539 million units and are down 10.9 percent on a year-ago basis.

Today's report indicates that housing may have hit its post-tax credits bottom. The multifamily component for starts has been a lot more volatile than usual but the single-family component is somewhat encouraging with two consecutive monthly gains. However, the level remains quite weak.

LOL, yet another “bottom” call, love it! How one can even say that word based on that report is far beyond me – but the fact that people are still clinging to hope is the very indicator to me that a true bottom is still a ways off. This is because true bottoms are marked by fear, despair, and hopelessness.

This morning several of the banks reported. Like Citigroup, Goldman’s numbers were down across the board yet they “beat” estimates, “earning” *only* $1.9 billion for the quarter (the word 'earnings' when mentioned within the context of any of the primary dealers is presented in quotes to denote that I actually mean ‘stealing’ or otherwise ‘falsifying’).

Speaking of falsifying, Bank of America announced yesterday that it had audited itself in regards to foreclosures giving itself a good bill of health and announcing that it is resuming foreclosures! Then this morning they announce that they lost a “meager” $7.3 Billion in the last quarter, more than wiping out all the falsified earnings of its competitors reported so far! Their proclamation of health is obviously a strategy of ignore and hope that nobody calls them on it. And that’s probably a good gamble for them because they certainly can’t afford to handle reality, so pretending and hoping that no cops show up is a good call for them! Why not? There are no cops. That’s been proven time and again over the past several years. This is like the gangsters who shoot somebody in public in broad daylight – they look at the people who witness their crime and dare them to do something about it, knowing that they won’t and that the cops are on the take. The truth, of course, is that every loan processed through MERS is probably not legal because they bypassed state law. Can you imagine just up and creating your own systems to ignore the state laws? That takes some mega hubris.

And speaking of hubris, BAC's earnings are a great example of a company that reports positive earnings "ex-items." Despite losing $7.3 Billion for the quarter, just look at what is being reported: "Dow component Bank of America Corp. (BAC $12 1) posted 3Q profits ex-items of $0.27 per share, eleven cents above the consensus estimate..."

LOL, a "beat" and POSITIVE EARNINGS despite LOSING $7.3 Billion!!!

The pump monkeys on Wall Street call this "operating earnings" and they will tell you that P/E ratios based upon those earnings are great, never been a better time to buy. It's all FRAUD, there are no accounting cops.

But now it’s time for the market to come down from orbit and return to the land of reality. Key levels like 1170 and then 1150 have to fall, but it’s looking very much like a top has finally been put in. I say that not based upon broken support (which still needs to fall), but based upon the reaction to earnings. It’s all priced in, all of it – perfect earnings, daily POMOs, QE666, all of it. Of course this morning’s open is going to cause a large gap, and all gaps get filled, so don’t panic when it does. There are so many gaps on the charts that it’s not even funny – they will all fill.

For those not paying attention there was yet another flash crash yesterday. This time it occurred in the SPY and more than half a billion dollars worth of trades was undone by the exchange. This is simply more proof that the ratio of computer to human trades is so far gone that you can’t even call it a marketplace, it’s more of a simulationplace. If this lowers your confidence in the market, your reaction is appropriate, it should.

All the divergences I’ve been pointing out over the past few weeks are only growing larger. Yesterday was a big divergence as the number of new 52 week highs fell dramatically despite higher price. Again, this shows a narrowing breadth, the size of these divergences is historic. I believe we have very likely seen the end of wave 2, but again we need to see key support levels fall.

For those who like a good laugh, I’ll simply leave you with quotes from little Timothy Geither:
Geithner: U.S. will not engage in dollar devaluation

(Reuters) - U.S. Treasury Secretary Timothy Geithner on Monday sought to ease fears the United States was actively weakening the dollar to gain an export edge, saying no country could devalue its way to health.

"It is not going to happen in this country." Geithner said of dollar devaluation to Silicon Valley business leaders here.

"It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity, to (be) competitive," Geithner added. "It is not a viable, feasible strategy and we will not engage in it."

Geithner broke his silence on the dollar's slide in recent weeks as the Federal Reserve considers more monetary easing. In response to audience questions from the Commonwealth Club of California, he said the United States needed to "work hard to preserve confidence in the strong dollar."