Wednesday, December 22, 2010

Morning Update/ Market Thread 12/22

Good Morning,

Equities are higher this morning with bonds higher, the dollar higher, oil higher, and gold also higher.

Oil is pushing the $90.53 level which is a 50% retracement of the ’08 decline and thus is a very important level for oil – and for the economy:

The psychotic Mortgage Banker’s Association’s Purchase Applications Index fell another 2.5% in the past week with Refinancing activity falling a crazy 24.6%... in one week! That brought their overall index down by 18.6% - here’s Econoday:

The number of buyers filing mortgage applications fell 2.5 percent in the December 17 week, the second straight decline to show no significant improvement from a month ago. The report warns that home sales are likely to remain "relatively weak" over the next few months.

Some of the softness is tied to rising mortgage rates which are really cutting into refinancing volume. Refinancing applications fell 24.6 percent in the week and are back to levels last seen in April. The average 30-year rate was 4.85 percent in the week, up one basis point from the prior week and up 35 basis points from one month ago. Next data on the housing sector are existing home sales for November, to be posted at 10:00 a.m. ET.

Wow, if a one basis point rise in mortgage rates results in that type of drop, it’s going to get real interesting when rates finally normalize – and at some point they will.

The third and final revision to Q3 GDP data came in at 2.6%. This is a revision higher than the previous 2.5% trumped up report, but not anywhere near as high as expectations which were looking for 3.0%. It’s all false and all fraud, but here’s Econoday’s summary:
The economy got an upgrade this morning from the Commerce Department but it was notably below expectations. For the second month in a row, third quarter GDP growth was revised up, this time to 2.6 percent annualized from the prior estimate of 2.5 percent. Analysts had projected a 3.0 percent final estimate.

The upward revision was primarily due to a higher estimated for inventory investment with small improvements to net exports and residential investment also contributing. Softening the upgrade were downward estimates for personal consumption, nonresidential fixed investment, and government purchases.

The biggest disappointment of the report is that demand numbers were revised down. Final sales of domestic product were lowered to 0.9 percent from last month's estimate of 1.2 percent. Final sales to domestic purchasers were downgraded to 2.6 percent from the second estimate of 2.9 percent for the third quarter.

Absolute strength within final sales is still found in PCEs, revised down to an annualized 2.4 percent boost in the third quarter from the prior estimate of 2.8 percent. Investment in equipment & software gained 15.4 percent versus the previous third quarter estimate of 16.8 percent. Government purchases advanced 3.9 percent, compared to 4.0 percent for the prior third quarter figure. Absolute weakness was found in residential and nonresidential investment. Also, net exports worsened.

Year-on-year, real GDP in the second quarter is up 3.2 percent, compared 3.0 percent in the second quarter.

On the inflation front, the GDP price index's growth rate for the third quarter was nudged down to 2.1 percent annualized from the prior estimate of 2.3 percent. The consensus forecast was for 2.3 percent.

Probably the best thing you can say about today's report is that it reflects old data. The mix between final sales and inventories is not as good as expected. But more recent economic data have been far more upbeat. Most likely, the final figures for third quarter GDP will not have a significant impact on estimates for fourth quarter GDP.

On the news, equities eased but remained positive.

Again, our GDP is grossly overstated as it is based largely on financial engineering which itself is built upon fraud. I’m not talking a few percentage points either, I’m talking about a very sizable chunk of it.

I note that Bloomberg is running an article on it that states that the “Price Rise is Slowest in 50 years.” Again, that’s just flat out fraudulent – GDP benefits from low inflator numbers, it makes the economy appear stronger than it really is. So if they’re using the lowest deflator numbers of the past 50 years while everything but housing is soaring in price, then the gap between reality and the fantasy that is our government’s GDP number is gapping wider.

Existing Home Sales were expected to come in at 4.75 million for the month of November with October coming in at only 4.43 million. The actual report for November just came in at 4.68 million, slightly below expectations. The FHFA Price Index rose .7% in the month, but is down 3.4% year over year.

New Home Sales will be reported tomorrow along with a slew of other data, again markets will be closed on Friday.