Wednesday, December 1, 2010

Morning Update/ Market Thread 12/1

Good Morning,

Another day, another HUGE gap, this time it’s up. Everyday now begins with a gap, a sign of a sick and broken market which is a reflection of a sick and broken monetary system. But hey, Santa must be coming to town and it’s time to rally even if Santa is sky high living on crack. The dollar is down, the euro is up, bonds are down significantly (rates higher), oil is zooming again ($85+), gold is higher, and most food grains are higher too.

The market is pushing on SPX 1200 again, if it breaks and we run higher, it could signify the beginning of wave 5 up. The RUT is already challenging its recent high.

The still worthless MBA Purchase Applications Index supposedly moved 1.1% higher in the past week, however, refinancings fell hard, down 21.6% (in one week?) to bring the overall index down 16.5%. Here’s Econoday:
Prospective home buyers are applying for mortgages, at least they have been for the last couple of weeks. The purchase application index rose 1.1 percent in the November 26 week, adding to and confirming the prior week's double-digit gain and making a new post-stimulus high. Low home prices and low mortgage rates are stimulating demand.

Yet rates aren't as low as they were, rising six basis points in the week to an average 4.56 percent for 30-year loans. The 30-year rate was below 4.30 percent only three weeks ago. The rise has been cutting into refinancing applications which fell 21.6 percent in the week for the third decline in a row. Watch for anecdotal comments on the housing sector in this afternoon's Beige Book.

Nothing but contradictory drivel – the MBA won’t show us absolute figures, their goal is marketing, not economic reporting.

The Challenger Job Cut Report which tracks announced mass layoffs rose sharply in November, up 28.2%, rising from 37,986 to 48,711 – ho, ho, ho, Merry…

But not to worry, the bulls are getting behind another worthless report, this one from ADP whose estimate of job growth more than doubled from last month’s 43,000 (revised all the way to 82,000), coming in at 93,000 supposed new private jobs for November. Of course despite their track record for never aligning with the BLS, they do set expectations among the non-thinking crowd. Keep in mind that Friday’s Employment Report is going to be negatively affected by seasonal corrections to their Birth/Death model, as November is one of only two months that the BLS subtracts jobs out with this ridiculous adjustment. If nothing else, they seem to be consistent with their months when looking at one year to the next. Bottom line – do not expect a strongly positive report due to this adjustment which will likely be negative:

Nonfarm Productivity and Labor costs were released this morning, the headline number rose from 1.9% to 2.3%, but that is a miss on expectations of a 2.4% productivity rise - here’s Econopray:
Companies are still squeezing out as much output as possible from the current workforce instead of adding to payrolls as productivity for the third quarter got a boost. Nonfarm business productivity for the third quarter was revised up to a 2.3 percent gain from the initial estimate of 1.9 percent. Analysts had forecast a 2.4 percent increase in productivity. Growth in unit labor costs for the third quarter was unrevised compared to the original estimate of an annualized 0.1 percent decline. The market median forecast called for an incremental upward revision to no change. Productivity is up from a minus 1.8 figure for the second quarter while unit labor costs improved from a 4.9 percent spike the prior period.

Productivity is up largely due to a 3.7 percent rebound in nonfarm business output after a 1.6 percent rise in the second quarter. Also, hours worked eased to a 1.4 percent increase from 3.5 percent in the second quarter. Compensation rose an annualized 2.2 percent after a 2.9 percent boost the quarter before.

Year-on-year, productivity was up 2.5 percent in the third quarter-down from 3.7 percent in the second quarter. Year-ago unit labor costs moved up to an annualized minus 1.1 percent from minus 1.9 percent in the second quarter.

It's the best of both worlds for profits-productivity is up and costs nudged down. But for the unemployed, the trend means slow hiring. There was little market reaction on the news.

First note that this report does not square with the ADP jobs added report… this report indicates a decrease in work hours which means fewer workers not more. This report is just another deeply flawed report – it too is influenced by the value of a dollar, as goods sold can rise in price and if true inflation is not adjusted (it’s not) then this figure becomes meaningless. Actually it becomes more of a gauge showing the DIFFERENCE between reported inflation and REAL (real) inflation… if you follow that. In other words, if sales measured in dollars increase, but I don’t actually sell more items, then productivity is artificially raised and didn’t really happen. Am I right? What’s gold doing?

The Manufacturing ISM and Construction Spending are released at 10 Eastern – these will be reported in the daily thread.

Yesterday the VIX closed above the upper Bollinger band thus setting up a market buy signal:

Today it is obviously going to close back inside the range, thus we have a buy signal on today’s close. It could be announcing wave 5 up which would coincide with a positive time of year. December typically is low volume, and with a POMO every single day, I’m sure we can look forward to $100 a barrel oil by Christmas and Netflix at $500 a share. Ho, ho, ho…