Saturday, May 8, 2010

May Monetary Trends…

We are beginning to see some notable changes with this issue of the St. Louis Fed’s Monetary Trends. First I’d like to point out from page 6 that consumer credit is still largely negative on a year over year basis. That’s saying something, as a year ago it was dramatically down from prior levels. The same goes for Nonfinancial Commercial Paper which is trending upwards from its collapse, but is still down in the 30% year over year range.

Noteworthy from my perspective is that MZM, the largest measure of money the Fed currently releases, is now negative on a year over year basis, M2 is not far behind and is barely positive:

The spike induced in the money supply was historic, that support is no longer being applied at the same rate. Interest rates hit zero and are still zero, yet the supply of money (as measured by the Fed) is now shrinking from the amount one year ago. As large quantities of money (debt) is forced into the system, the velocity of that money naturally falls. As injections slow, velocity should rise. However, when the system is left in a debt saturated state, velocity cannot return to previous levels as more money is required to service the now larger quantity of debt that each cycle has produced.

When we look at Base Money Velocity Growth, we see that it is coming up from the cliff dive experienced with massive money injections, yet it is still largely negative year over year.

Both MZM and M2 velocities have turned barely upwards but are at extreme low readings. Note that velocity is not responding the way one would expect with the monetary aggregates declining. Also note that with each cycle it attempts to move back higher, but produces a lower low and a lower high.

The S&P Price to Earnings ratio (based upon trailing earnings, the only earnings that matter as everything else is just a guess), have fallen dramatically as earnings have come back up.

They are still at the historic upper end, that being in the twenties, an area normally associated with tops. So, what happened to this chart, why the rocket shot in P/E and now sudden drop?

Earnings collapsed as financial firms were forced to mark their earnings to market, a price for which they could actually sell their “assets.” That wiped out earnings and left the price sky high in relation to those reality based asset prices. Then they pressured Congress, who pressured FASB to reinstate mark to fantasy. “Earnings” came back up as “assets” once again were valued to their own models, bonuses flow, and Price to Earnings came back down.

FANTASY. Accounting fraud coupled with massive government stimulus, that’s all, nothing is fixed.

So, what about the future? Most of those “assets” that are marked to fantasy are debt based instruments. Income is required to service debt. Ponzi schemes ALWAYS break down when the cash flow is no longer sufficient to service the Ponzi growth. America and her largest financial institutions are insolvent. Mark their “assets” back to what the market and incomes can bear and the result will be the same.

May Monetary Trends

Friday, May 7, 2010

High Frequency Trading… Give Me a Break!

I just listened to an interview with a person (Manoj Narang) who is an expert on HFT. Please forward to the 3:20 mark to hear Mr. Narang defend HFT:

They are defending their practices, of course, claiming that they are the ones who provide the liquidity to the market and that the crash yesterday happened not because of them, but because they actually stopped trading and thus there was no longer any liquidity! LOL, that’s why he says that we mustn’t restrict their trading.

Do you see how they turn the entire premise upside down?

In fact, when the computers shut down yesterday there were NO BIDS! That means that there was NOBODY, no real person, willing to place a buy bid! In other words, the HFT was the entire market!

That’s the problem! They serve no real purpose, they do NOT belong and they have driven out all the REAL people. The market is WAY overvalued, the volumes of trading that have build up over the past decade and a half are almost entirely due to them! Who are the “investors” behind HFT? That’s the real question, they are the large banks and the large hedge funds who are in bed with the large banks. They are the market. And yet there is no legitimate function for them to be in the market whatsoever! Yes, the market would be much smaller without them, but it would also be much less risk filled.

I say that HFT and Dark Pools have no business in the marketplace. Do not be fooled by their talk of liquidity – they are a large part of the problem.

The other aspect of the debate over yesterday that really irks me is how everyone feels they must “fix” the way the market behaved by losing a thousand points. Funny, but I don’t remember hearing the same complaints back in March ’09 when the market was going up 900 points at a whack!

Notice how all efforts are to create a one way street that only goes up? THAT is also a part of the problem and contributory to the huge overvaluations. Imagine how the market would have been valued had the government decided not to interfere last year? Yesterday’s crash would not have happened. In fact we may have been entering a true bull market instead of a trumped up false statistic, false accounting, mark-to-fantasy lie. HFT necessary? Give me a break!

Morning Update/ Market Thread 5/7

Good Morning Crash Survivors,

Equity futures are flat to lower this morning as the dust settles from yesterday. The Employment situation report just released the headline numbers of supposedly 290,000 new jobs, but the unemployment rate jumped to 9.9%. Riiiight. Guess the BLS must have had a “fat finger” when they were adding up jobs, but we’ll take a look at it. Here's the action from yesterday and overnight:

The Dollar, as I was pointing out yesterday, reached its upper channel boundary and is lower this morning as you would expect. The Euro hit my 1.26 target at the bottom of its channel and is now bouncing. Should they fail to bounce and continue outside of their channels, look out! Daily charts of both are below:

Bonds are down after rising very steeply yesterday, interest rates falling. Oil is up slightly, rising just above important support, while gold is down slightly after just missing a new all time high yesterday. That trade is all about confidence, and boy do I ever have less of it by the hour, you should be feeling the same way, the latest unemployment numbers are NOT helping in that regard.

Here’s the entire Employment Report from the BLS:

Employment April

The obvious first question is why did the unemployment rate increase and yet more jobs were supposedly created? That is answered right up front as the household survey increased the number of people in the workforce by a much larger number than people who got jobs. This is “hidden inventory” of workers if you will, the same type of number fudging that has been occurring in the housing market! If a bounce in activity occurs, then the people who were standing by come out of the woodwork. In this case, suspicious Nate could make the case that the prior numbers were intentionally lowered to make the rate appear better than it actually was. No, I do not trust or have confidence in any of these numbers. Regardless, here’s how the BLS explains it:
In April, the civilian labor force participation rate increased by 0.3 percentage point to 65.2 percent, as the size of the labor force rose by 805,000. Since December, the participation rate has increased by 0.6 percentage point. The employment-population ratio rose to 58.8 percent over the month and has increased by 0.6 percentage point since December.
And here’s how Econoday, who has never questioned a report in their lives, spins it:
Today's jobs report was unexpectedly strong-including after discounting Census jobs. And a rise in the unemployment rate actually points to optimism on the part of workers. Payroll jobs in April grew a healthy 290,000, following a revised 230,000 advance in March, and 39,000 rise in February. April's boost topped the market estimate for a 200,000 gain. Net combined revisions for March and February were up a 121,000-including turning February from negative to positive. But the key number is private payrolls as Census hiring added 66,000 to April's jobs. Private nonfarm employment increased 231,000, following a 174,000 rise in March.

Payroll gains were widespread, including increases in goods-producing and service-providing sectors.

Wage inflation is nonexistent currently but it is hard to tell initially if weakness is related to shifts in the composition of hiring or not but that likely partially explains the weakness. Average hourly earnings were flat in April, following a 0.1 percent dip in March. Analysts had expected a 0.2 percent boost.

Not only is hiring improving but the workweek. The average workweek for all workers firmed to 34.1 hours from 34.0 hours in March. The consensus had projected 34.0 hours. The traditional series for production and nonsupervisory workers improved to 33.4 hours in April from 33.3 the prior month.

From the household survey, the unemployment rate rose to 9.9 percent from 9.7 percent in February, coming in above the consensus estimate for 9.6 percent. But the jump was due to an 805,000 surge in the labor force. April household employment actually jumped 550,000. Basically, discouraged workers see hope of employment and have jumped back into the labor force.

The bottom line is that the U.S. labor market is showing notable improvement. This could help the consumer sector regain optimism and strengthen the overall recovery. Equity futures rose on the news.

Actually, equity futures tried to spike on the news but almost instantly fell back. Give me a break, you bet, crashing markets and unbelievable statistics are going to make the “consumer” regain optimism. Keep hoping.

First of all, this number of new jobs is the highest number of jobs reported in the past four years, yet it is barely at the rate necessary to keep up with population growth. Secondly, what types of jobs are being created? Temporary census workers? Burger flippers? Financial engineers? Yes, it would appear that there are increases among the “professions” and construction, but those increases are still small. And thirdly, ZeroHedge is reporting that 188,000 of those "jobs" were created by the BLS's "Birth/Death" model.

Taking a look at the Alternate tables we see that U-6, the statistic most closely resembling the way the statistic was measured over time, when not seasonally adjusted fell to 16.6%, but that seasonally adjusted it rose to 17.1%:

According to John Williams at Shadow Stats, the real unemployment rate is actually 22%!

Chart of U.S. Unemployment

Just remember that our government has spent literally trillions “creating” those jobs, but what they don’t get is that because of their debt backed money ways, they have reached saturation. The more debt they throw at the economy now, the more jobs that will ultimately wind up being lost as debt/money losses its velocity and more of income must go to service debt. These debts are so huge that confidence is being lost around the world. Bailing out the bankers instead of the people was a catastrophic mistake, in the end I believe it’s actually a mistake that will provoke action against the bankers and against the way we back our money with debt. In that regard, it is probably good for humanity to go through it and learn the lessons.

As I’m typing this out, the futures just turned negative – fudged numbers do not instill confidence, they better start creating true transparency if they really want to calm the markets.

So, was it a “fat finger” mistake that produced the largest point drop in NYSE history yesterday? NO. Here’s the CEO of the exchange, Duncan Neiderauer, who explains how his exchange is different:

Sorry for the commercial.

Note that he didn’t address quant trading. Here’s my take… there is no reason in the world to ever allow computers to execute trades, they do not perform a market function that benefits society. In fact, they do create risk. They also give an advantage to those who have the money and wherewithal to implement them, leading to a concentration of wealth, and limiting the number of real players in the market. Therefore, they should not be allowed – period. Dark pools? Forget it.

The market place has turned into a casino, one in which the functions of the market have been forgotten.

The decline yesterday was very serious even before the crash. This was on concerns about Greece and about contagion. Sorry, the contagion already occurred when the central bankers pressed their debt and derivatives around the globe – too late.

Then comes in Harry Reid who talked up the Audit the Fed bill and said that it looked like the provisions to break up the big banks would come to vote. Now let me ask you this… who is it that owns, holds, or controls the vast majority of stock and the vast majority of trading computers? Who is it that actually produces and controls the money in this country and around the globe? The same people, the same entities? YES!

If you were being attacked and told that you were going to be broken up, what would you do? You would do the same thing that central bankers have done for centuries throughout history, you would crash the markets in a not so subtle hint to leave them alone. This is about power and control, do not be fooled.

So, what was the result of the “scary” crash?

Senate Rejects Plan to Shrink Biggest Banks in Financial Bill

May 6 (Bloomberg) -- The Senate rejected a proposal that would have required the nation’s six largest banks, including Citigroup Inc. and Bank of America Corp., to shrink in size as part of an overhaul of the U.S. financial-regulatory system.

The proposal would have turned the banks into “smaller, more manageable” institutions and forced them to maintain enough capital to cover their debts, said Senator Sherrod Brown, the Ohio Democrat who offered the amendment. The Senate voted 61-33 to reject the measure.

Lawmakers are debating Senate Banking Committee Chairman Christopher Dodd’s proposed rules overhaul, designed to prevent a repeat of the 2008 financial crisis that forced the U.S. to extend $700 billion in taxpayer funds to companies including Citigroup and Bank of America. Lawmakers are crafting rules amid voter anger over Wall Street risk-taking blamed for causing the worst economic collapse since the Great Depression.

Could it be more obvious?

Oh, and the bill to audit the Fed is having the guts pulled out of it as well. Yesterday Goldman fell below support, but as those things were announced, they bounced back up, amazing how that happens. The message is clear, LEAVE THEM ALONE, do not rock their power structure or the markets come down.

I say the markets are completely broken – take them down and take back the power of money creation! We will all continue to be held hostage until that changes!

Now let’s look at the Technical damage… first of all, it’s pretty obvious that there was a trend change and that the psychology of the market has turned, this is something I’ve been pointing out over the past few days. Yesterday’s high volume washout is typical, however, of the final wave move where sellers capitulate. This means that it’s likely that the market takes a breather and may even make some of it back, but again, if that doesn't happen, lookout. The alternative, of course, is that confidence is so badly shaken that over the next few days we see more volatility. I think that if the theory is correct that the central bankers are manipulating the market, then they may be happier for awhile as the heat on them has been momentarily turned down, we’ll see. Continue to watch GS, above $150 is bullish, below $140 is bearish.

The VIX blew sky high yesterday, jumping to above the 40 level. I captured a snapshot of it right near the peak:

It has since fallen back and is now around the 32 area, still way above the upper Bollinger.

What failed to get much attention yesterday is that there was a huge move occurring in the Yen:

That move in the Yen came out of nowhere. It has been suggested that this is capital fleeing a crashing China? We need to watch the follow on, the Yen is back down today. The Euro, of course, had been under severe pressure and had been sliding hard, something that is often seen before market crashes, the crash of 1987 being a good example.

How did the Central Bank of Japan handle this move? The same way they handle all moves, by printing up more Yen! This time it was “only” two trillion! Hey, last time it was more than 10 trillion!

BOJ Pumps 2 Trillion Yen Into System on Greek Crisis

May 7 (Bloomberg) -- The Bank of Japan said it would pump 2 trillion yen ($21.8 billion) into the financial system to help stabilize the market after the Greek debt crisis set off a plunge in stocks worldwide.

The emergency measure represents the bank’s first same-day repurchase operations since December when credit concerns at Dubai World sparked a global flight out of higher-yielding assets. The injection was the largest since December 2008, the last time the BOJ lowered its target interest rate.

“The Bank of Japan seeks to raise the sense of security in the market by providing ample funds,” said Yuichi Adachi, director of the press section of the central bank.

Money markets overseas show banks may be increasingly reluctant to lend to each other. The spread between the three- month dollar London interbank offered rate, or Libor, and the overnight indexed swap rate rose to the most in more than five months, reaching 13.4 basis points yesterday. The so-called Libor-OIS spread has increased from 6 basis points on March 15.

Demand for Dollars
Investors exchanging yen for dollar funds accepted interest payments 36 basis points below Libor for the Japanese currency, the biggest discount since November, according to data compiled by Bloomberg. The spread reached a record low of 86 basis points in February last year as the global finance crisis made it harder for Japanese companies to borrow dollars.

“While there isn’t pressure building up in Japan’s credit markets, stocks plunged so the measure was taken to prevent anxiety,” said Shinsuke Kanabu, project and research director at Central Tanshi, a Tokyo-based money market dealer and broker.

The Nikkei 225 Stock Average slid as much as 4.1 percent, after the Dow Jones Industrial Average yesterday briefly plunged 9.2 percent, the biggest intraday percentage loss since 1987. The yen declined 1.5 percent against the dollar.

“The emergency fund injection from the BOJ helped ease risk aversion, triggering selling of the yen,” said Hiroshi Maeba, deputy manager of foreign-exchange trading in Tokyo at Nomura Securities Co., Japan’s biggest securities broker. “The action here also spurred speculation that the European Central Bank and the Federal Reserve may follow suit.”

Ha, ha! So, there is panic over sovereign risk and their response is to crank out more trillions? Brilliant! Brilliant, that is, if your goal is to destroy your currency. And Japan is well on their way, in fact leading the world in that regard. The numbers are so huge that there is no mathematical way possible for Japan to ever pull out. A change of their currency system is coming too, mark my words.

The dislocations in currencies are serious business. The action in the Euro has tripped a bearish target of PARITY or 1 Euro to the dollar:

The action in the DOW has triggered a bearish target of 8,600! Want to bet that it’s wrong? Go ahead and hold:

The Nasdaq P&F produced a target that is only another 19.4% lower than here, or 25% from the recent top! Want to bet that it’s wrong? Go ahead and donate to the central bankers and their computers:

Oil? Bearish target now $66:

Support for the S&P is now 1,107 with the next lower pivot at 1,090... if they still matter (they won't in a stampede). The number of new lows on the NYSE picked up to more than 230 by the time the dust settled yesterday. This is only two weeks from the recent top! Is there anyone who still believes that this is a new bull market? If you do, you need your head examined, this type of thing does not happen in true bull markets, it only occurs in bear markets and bear market rallies. In all likelihood we have finally begun wave C down. Things get very interesting from here.

By special request and to (dis)honor the fallen from yesterday:

Freddie King - Goin' Down:

Thursday, May 6, 2010

Gerald Celente on the Crash of 2010

Never one to shy away from saying what he thinks, here's Celente's take on the events of today and what he thinks the future holds. Fat Fingers? "Come on, let's grow up about this!" (ht Kevin)

Denial – Sickening pronouncements by media, disgusting moves by Exchanges

First it was the Proctor and Gamble supposed fat finger (Citi denies it and no single entity owns a billion shares), and now the NASDAQ is destroying the marketplace and confidence by doing this:

Nasdaq to Cancel All Trades of Stocks Moving More Than 60%

May 6 (Bloomberg) -- Nasdaq OMX Group Inc. said it will cancel all trades of stocks at prices that were 60 percent above or below the last price at 2:40 p.m. or immediately prior.

The exchange operator said in a statement it will cancel all trades "greater than or less than 60 percent away from the consolidated last print in that security at 14:40:00 or immediately prior."

Nasdaq said it coordinated the decision with all other exchanges.
Let me ask you this, why should you be playing in a market where if you make a winning trade they can take it away from you? Pure gambling, the criminals are in charge, there is no rule of law. These actions will destroy confidence, not build it and the people running the markets will eventually get what’s coming to them.

The media is absolutely shell shocked looking for any excuse plausible why the selling was not for real. It was for real, the market was saved by intervention, but the media can’t admit the crash much less the intervention. Denial isn’t just a river in Egypt, that’s for sure…

Market Crash 5/6/2010

Today the intraday market crash was the largest since 1987, at the low the DOW touched 9,870 and was down 992 points or 9.1%.

This crash happened in the same manner as the crash in 1987, with a currency melting down in the background. Then it was the dollar, today it is the Euro.

Is this a one day wonder like 1987? NO! It is a continuation of the debt events that have been creating crisis after crisis since even before the year 2000 and are accelerating. Great risk remains as I’ve been warning. You are going to continue to see debt driven events circle the globe, and they are very likely going to lead to “other” events. You should be worried and you should be prepared.

Now, let’s talk about today, the drop was NOT a “fat fingered” mistake. The backdrop was set for a crash with the movement in currencies over the past several days. Today Harry Reid made a statement that he was going to support legislation to break up the big banks and that it and the audit the Fed bill would make it to a vote. KABOOM. The central banks who own all the computers and all the stock hit the sell button. The lesson? Don’t mess with the people who control the money. This is yet another historic event where the central bankers are flat out blackmailing the people in order to get their way. The message is, “keep your hands off or we crater the markets.”

This is why it is so important WHO controls the money – and make no mistake, the private central bankers make ALL the money, not the government. WHO controls it is FAR more important than WHAT backs it! The solution? Sovereign money as would be produced under the provisions of Freedom’s Vision.

That said, the debt around the world, as I’ve been saying, is completely out of control and once saturation has been reached there is a phase transition where adding more debt SUBTRACTS from economic productivity:

Note that I am not showing you a stock market chart, I am showing you a chart that is directly related to DEBT, the root cause not just a symptom.

Once saturation has been reached, it is impossible to cure a debt problem with more debt. Sure, things can move higher for awhile, but it is (and it was) FALSE. This is not over folks, it won’t truly be over until the root issues of our money system are addressed.

Today you had DEEP pocket money step into to stop the decline, it is a warning. Confidence has been eroding and that confidence may have just begun a phase transition of its own. That’s the way it goes. Now the markets are going to have to prove they are stable over the next few trading days. I’ll go over the technical picture later today or tomorrow morning.

*UPDATE: The Proctor & Gamble excuse is nothing but a rouse. Below are two charts, one showing the S&P futures (/ES), the other showing PG for each minute. It is clear that the market headed down FIRST, PG second. We are a sick and delusional society that cannot even accept what we are doing to ourselves, SICK. CNBC should be sued and they should be removed from the air.

Morning Update/ Market Thread 5/6

Good Morning,

In a change of character for the market equity futures are down once again, dip buyers are apparently hiding. Below is a 5 minute chart of the DOW on the left and a 30 minute view of the S&P and its downchannel on the right:

The downside follow through yesterday also showed the change of character with people expecting a meaningful correction, they have shifted to selling the bounces. Frankly I would have expected some sort of bounce by now and think that it still could come later today or tomorrow but we may need to put a little more fear in place first with a good flush, we’ll see. It could be that this range over the past couple of days was a sideways wave 4 and there is one more leg lower to finish this wave. A break below /ES 1,155 will mean that another leg lower is underway, but a bounce above 1,175 will mean a correction of the decline.

The dollar is again higher overnight, it is in a parabolic rise towards the top of its channel while the Euro is crashing towards the bottom of its channel. The daily chart below shows how the dollar is getting close to its boundary:

Oil is continuing to correct, down nearly another buck and a half this morning at $78.60. It should find some support around $77 and that may correspond to the dollar reaching its channel top. Gold is just doing its own thing, yesterday falling and recovering, today is a little higher again.

Freddie Mac needs another $10.6 billion of your money, no biggie in the media, mere pocket change.

Of course tomorrow’s employment situation report will be significant. All indications are that we’ll pick up 120,000 temporary census workers (on your nickel, of course), and that there will be positive numbers all the way around – that’s the set up anyway and the “Monster” employment index rose to cement those expectations, here’s Econoday:
The Monster employment index jumped 8 points in April to 133 for the biggest increase in nearly three years and the latest indication of recovery for the jobs market. Job postings in transportation & warehousing are on the rise as shippers respond to growing demand and slowing delivery times, and construction showed strength in a sign of recovery likely centered in the residential sector. Retail trade and manufacturing also gained, two sectors that have been showing building strength, as did mining. The data are seasonally adjusted.

Of course they are seasonally adjusted – must have a reason to be able to “adjust” the numbers and not provide the raw data, it’s the American way.

Unemployment claims came in roughly the same as last week and inline with estimates, falling from 448k to 444k, the prior week, of course, was revised higher:
Unemployment claims improved for a third straight week but far from dramatically. Initial claims for the May 1 week fell 7,000 to 444,000, pulling the four-week average down 4,750 to 458,500. The prior week was revised 3,000 higher to 451,000. Continuing claims for the April 24 week fell 59,000 to 4.594 million, though the four-week average for this reading rose slightly to 4.649 million. The unemployment rate for insured workers is unchanged at 3.6 percent.

Month-to-month comparisons show very little change and are not strongly supportive for expectations of incremental improvement in tomorrow's employment report. Markets are showing no significant initial reaction to today's results.

According to the DOL, “States reported 5,354,259 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending April 17, an increase of 153,786 from the prior week. There were 2,279,478 claimants in the comparable week in 2009.”

That is still roughly a 3.1 million year over year increase in the number of people drawing Emergency Unemployment Compensation, something seldom reported in the media.

Nonfarm productivity was reported as rising 3.6% in the first quarter and 6.3% year over year. Meanwhile labor costs fell by a very large 1.9%. While that may sound like nirvana if you are a businessman, it is actually quite indicative of a deflationary environment. Here’s econoday:
Productivity growth slowed in the first quarter while the recent decline in labor costs came to a near halt. Nonfarm business productivity rose an annualized 3.6 percent in the first quarter after a 6.3 percent surge in the final quarter of 2009. Analysts had forecast a 2.6 percent gain in productivity. Unit labor costs slipped an annualized 1.9 percent in the first quarter, following a fourth quarter drop of 5.6 percent. The market projection was for a 1.0 percent dip in costs.

The easing in productivity growth was largely due to less robust output growth and was largely expected, given the slowing in GDP growth. Output in the nonfarm business sector advanced 4.4 percent, following a 7.0 percent spike the prior quarter. The good news in the report is that hours worked has risen modestly for two quarters, indicating some improvement in demand for labor. Hours worked increased 0.8 percent in the latest period after edging up 0.7 percent in the fourth quarter. While modest, these gains are in sharp contrast to large declines in prior quarters.

Year-on-year, productivity rose 6.3 percent in the first quarter-an improvement 5.6 percent in the prior quarter. Year-ago unit labor costs slipped to minus 3.7 percent from minus 4.6 percent the previous quarter.

Both productivity and costs were a little better than expected. This is good news for the Fed, which needs to see a continuation of subdued inflation pressures. Equities were up slightly on the news.

Equities were not up for very long.

Here’s my take. The “miracle” increases in productivity are not what they would lead you believe. Yes, technology and layoffs are forcing marginal increases in productivity, but not anything like the scale that’s being reported. That’s because productivity is measured in DOLLARS, not widgets. It is based on a trumped up GDP that is fluffed with false inflation figures, financial engineering, and false accounting. Turning on my printer and cranking out instruments of debt is not real productivity, it is Ponzi.

Falling wages against huge amounts of debt issuance is simply not good. It requires income to service debt. The lower the income, the less debt that it can service. The less debt in a debt backed money system, the less money. Sure, compensate by issuing even more debt, that will lead to a loss of confidence and events like you are seeing in Greece. Those events will spread to the rest of the world, you should be concerned – very concerned.

Yet what does the media tell you? Hey, there’s nothing to fear, there’s a “recovery in bloom…”
Don't fear the VIX

…Yet despite all the hemming and hawing, the market really hasn't been all that volatile. Between the high on April 27 and the low on Wednesday, the one-week swing on the Dow was 404 points.

But year-to-date the Dow is still up 4% and stands higher than it did a month ago. There are still plenty of signs that the U.S. recovery is moving forward.

That's not the case now.

Reality check
Let's compare the recent slide to the seven trading sessions between Oct. 7, 2008 and Oct. 15, 2008. During that period, the Dow ended higher or lower by an average of 464 points a day, and the swing between the high and low was 2,241 points.

During all that turmoil, the VIX jumped just 25%.

A little over a week later, on Oct. 24, 2008, the Dow plunged 312 points as part of a global market bloodletting and the VIX briefly hit an all-time high of 89.35 before closing off those levels.

During that time, the jumps in the VIX clearly reflected what was going on around the world.

Investors were in full-blown panic mode as credit seized up, Congress swooped in to prop up falling banks and signs pointed to the coming of the second Great Depression.

Money was yanked out of stocks and dumped into cash or low-yielding bonds. The yield on the three-year note, seen as the safest place to hide cash short-term, fell to a 68-year low of zero percent.

When the market was pricing in Armageddon, the VIX was in tune with the reality.

Recovery in bloom
That's not the case now.The threat of Europe's debt problems spreading is out there, but it's been out there for months. It's one of the factors that caused the 9% selloff on the S&P 500 between Jan. 19 and Feb. 4. But since that time, stocks have recovered and moved higher. The S&P 500 is currently up 4.5% year-to-date and up 10% since its February lows.

Most recently, European leaders pledged to provide Greece with $146 billion in loans over three years, taking the edge off worries that the nation would default on its growing debt.

That’s nice, nothing to fear. Well, there is certainly nothing to fear for at least three Greeks, the rest of us living might want to think about what the central bankers are really up to just a wee bit more…

Oh, and don’t be concerned that despite the fact the market has gone up for 14 straight months that the number of new 52 week lows has risen to 44 on the NYSE while on the Nasdaq new lows are outnumbering new highs already. Yeah, that’s normal, nothing to fear.

Blue Oyster Cult - Don't Fear The Reaper:

Wednesday, May 5, 2010

Morning Update/ Market Thread 5/5

Good Morning,

Equity futures have taken another leg lower this morning, below is a 5 minute chart of the DOW on the left showing the overnight action, and on the right is a 30 minute view of the S&P:

You can see in the above chart that there is now a well defined channel in place, prices are dipping below the bottom of that channel now. The bottom of that channel will be about 1,160 at the close today and the top will be about 1,195.

The Euro is getting smacked once again, it too is in a down channel but it has a way to go to get to the bottom which is just below 1.26, a huge move still. Below is a chart of the dollar on the left and Euro on the right. The dollar is racing towards the top of its channel, now just under 85 and I think it is targeting near the prior highs right around the 88 area. That’s a huge move from the last low down at 74, and it happened very quickly:

Three people were killed in Greek riots yesterday, some buildings were burned. Also, Moody’s placed Portugal on watch for another downgrade.

Commodities are collapsing again this morning, oil is making a huge move down again today and is back under $80 after losing $7 in just two days. Gold, which started out strong yesterday, collapsed mid-day and is down again this morning although not as hard as other commodities. This is margin type selling, it is affecting everything.

Yesterday’s rout was a 93.5% down day by volume, the third such 90%+ down day in the past 13 sessions. This is very bearish to have a cluster of them like that, they often occur at major tops.

The number of new 52 week lows on the NYSE picked up considerably yesterday to 29. That is three times recent numbers. Think about that, we have been going straight up for 14 months, are still barely off the highs and yet we have companies who are hitting lows! That’s the type of marker that shows internal unhealthiness. New highs plunged to just 80. Remember, we were just over 600 at an all time record and I was repeatedly warning that was an extreme that often marks significant tops. Should the selling continue for awhile, we may get into Hindenburg Omen territory. That requires BOTH 85 new lows and 85 new highs occurring together along with some other conditions. That could occur if the selling continues awhile and then we bounce, I’ll be watching for it and will keep you informed.

Here’s a piece that shows the human side of what’s happening to the American middle class dream. An Air Force Major and his wife, working for their country get moved and have to find a place to live. Yes, they made the mistake of buying into the hype and bought a home at bubble prices, but just look at how much pressure society places on them to do so – everything is marking spin and flat out lies. This is really a tragedy, something that is affecting the trailing edge Boomers and those immediately following much more harshly than those who were on the leading edge of the demographic bubble. Their future will not be anywhere near what their parents experienced and they will likely never own a home free and clear:
Drowning in debt as home prices dive

(Money Magazine) -- A transfer in 2005 landed Air Force major Richard Hallbeck, his wife, and two kids in Southern California smack in the middle of the real estate bubble. Home prices in the area had doubled in the past five years and were still climbing. So the Hallbecks swallowed hard and bought an $845,000 four-bedroom in a suburb of Long Beach.

The $3,800 monthly payment was high but affordable on two incomes. (Laurie, now 37, worked as a claims adjuster.) And they figured the market was so strong that when they had to move again, they'd at least break even. "Our house actually appraised over what we paid for it," Richard, 42, recalls wistfully.

Since then, area sale prices have fallen 26% -- when properties sell at all. Meanwhile, the recession cost Laurie her job, and the payment on the couple's adjustable-rate mortgage will jump $800 in July. Next year Richard will face mandatory retirement from the Air Force, and his pension will be a third of his current $117,000 income.

All that's got the Hallbecks anxious to move to a more affordable city -- like Dayton, where they used to live. But they're just as anxious about how much they could lose on the sale of their house.

A similar home down the street lists for $655,000, $21,000 less than the Hallbecks' outstanding mortgage. At that price, the couple would be out $231,000, including their down payment and closing costs. "The stress has really worn on us," Richard says.

Nationwide, about one in four home mortgages are now underwater, meaning borrowers owe more than their places are worth. No surprise, California and other bubbly states -- Nevada, Arizona, and Florida -- lead the nation.

While a bevy of new federal programs aim to help, underwater owners who want to move still face uncomfortable choices: Postpone the move and continue sinking money into a pit; sell for a loss, forfeiting the down payment and some savings to close the deal; desperately try to enter into a short sale; or simply walk away and face the consequences of foreclosure. If you (or your kids) are in this situation, here's how to think about the options.

Since Money first spoke to the Hallbecks, they have listed their home and attracted an offer of $655,000. That would've meant shelling out the $21,000 difference, plus some $40,000 in commissions and closing costs. So, the couple decided to hold out for more. "Hopefully," says Richard, "our expectations aren't too high."

Those prices still sound like bubble prices to me. Truly, an Air Force Major has no business buying an $845,000 house, but look at it... completely average. The banks certainly also have no business lending that much on a home like that, they are the experts and as far as I'm concerned should eat every penny. Note the reset of their likely Option-ARM loan, there is a wave of these coming, you are going to see upper end homes take another very large hit in the next couple of years.

Of course the article goes on to offer advice and several options for them, none of which are palatable. They need to forget that continued hype, put aside their emotions and treat it like a business decision. Get an attorney and get a real estate agent who knows how to work a short sale.

The worthless as ever MBA Purchase Applications index came in with wild weekly readings again. This time the purchase index was up a totally unbelievable 13%, while the refinance index fell 2.1%, here’s Econoday:
Buyers seeking second-round tax credits needed to have a contract in place by April 30 making for a 13 percent spike in mortgage applications for the week. Month-to-month, purchase applications rose nearly 24 percent. Both conventional and government applications showed significant increases in the latest week but especially government applications which made up over 50 percent for the highest share in 20 years. But like the first-round, second-round tax credits likely pulled a significant amount of sales forward and point to trouble for housing demand in the coming months.

But one plus will be what was thought to have been a negative, that is interest rates which are moving lower due to the sovereign-debt crisis in Europe and related demand for U.S. Treasuries. The average rate on a 30-year fixed mortgage fell 6 basis points in the week to 5.02 percent and looks to move substantially lower in the next report. But rates have been this low before and may have to break new lows below 4.90 percent to attract significant refinancing demand. The refinance index fell 2.1 percent in the week.

Boy, good thing interest rates are moving lower again, of course it’s taking a drain on equities to do it. By the time the central bankers are done, the Hallbecks won’t have a pot to piss in.

The ADP Employment Report went from negative 23,000 in March to a positive 32,000 for April. March’s figure was revised upwards to positive 19,000. I take the ADP numbers with a huge grain of salt. Of course the Employment Situation report is released this Friday and this will set expectations high for that. I am hearing that the Census hired, get this, 120,000 workers in the month of April! Think about that, yet another crime for the American taxpayer. At least during the Great Depression we had the CCC working on building trails and roads, today we just count one another and engineer financial products based on false accounting. So proud of that.

Speaking of false accounting, Goldman failed to hold over the $150 level yesterday, if it joins the selling party again, that would be very bearish.

The non-manufacturing ISM will be released at 10 Eastern this morning.

Just look at that VIX go! I think what's happening here is that we had a market sell signal and the Bollinger just got in the way. The fact that it is way above the upper band now means that obviously the latest market buy signals are negated for now. It is following a ballistic trendline up, it will produce another market buy signal at some point, but it needs to break that trend line to have significance for me:

The VIX P&F chart showed yesterday's triple top breakout and produced a target of 36:

Here’s a little mood music for the not too distant future:

Steely Dan – Black Friday:

Tuesday, May 4, 2010

Paul Mylchreest's Thunder Road Report - The “physical” squeeze in gold is gathering pace…

Below is a very thought provoking Thunder Road Report where Paul spells out the latest happenings in the gold market. Manipulation, investigations, scandal… it’s all there and I have seen no one who explains it better than Paul.

As a note of interest, what Paul describes in this latest report should once again give people great pause for those who believe that our money should be made of or backed by precious metals. The fact is that these are the most manipulated markets on the planet, always have been, and the same people who control our debt backed money also control the majority of gold – much of which has been stolen from the people. Each year our Treasury is supposed to assay the gold in possession of the United States, but that has not been accomplished since the 1950’s. Meanwhile the central bankers “Swap” OUR gold around the world and act as if it is theirs. The IMF creates debt obligations from nothing yet demands repayment in gold – nice.


Morning Update/ Market Thread 5/4

Good Morning,

Equity prices are significantly lower this morning. Below is a 5 minute chart of the DOW and a 15 minute chart of the S&P futures. Note on the right side a series of lower highs and higher lows, that is a perfect symmetrical triangle. Also note that yesterday’s advance stopped exactly by the 61.8% retrace line of the prior down move.

It appears that the bottom boundary of the triangle is broken, but I would want to see a new low that’s beneath the prior lows to become more bearish.

The dollar is much stronger and the Euro is basically in free fall. Below is a chart of the dollar on the left and Euro on the right. The dollar has broken out above the 83 level, that is very bullish, while the Euro has broken down to new lows and appears to be headed to the bottom of its channel. If so, it’s still quite a ways down before it finds support, most likely in the 1.26 region.

What’s going on, you thought Greece had been “saved,” right? Forcing both austerity and more debt onto a country is not a positive! But the largest negative of all is that the EU is having to break their own rules and make new ones. That’s an assault on the rule of law, capital does not like to stay where the rule of law is breaking down.

ECB Comes to Greece’s Aid by Waiving Collateral Rules

May 3 (Bloomberg) -- The European Central Bank joined the international rescue of Greece, saying it would indefinitely accept the country’s debt as collateral regardless of its country’s credit rating, underpinning gains in the bond market.

The decision came less than a day after Greece agreed to a 110 billion-euro ($145 billion) package of emergency loans from the International Monetary Fund and its euro-region allies. Under the plan backed by the ECB, Greece pledged 30 billion euros in budget cuts to bring a deficit of 13.6 percent of gross domestic product within the EU limit of 3 percent in 2014.

“The ECB is a key player in the rescue package designed to help Greece and it is clearly buying insurance against the likelihood of further multiple downgrades of the Greek debt, something that might lead to a halt of ECB financing to the Greek banks,” said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London.

Further downgrades from credit-rating companies had threatened to render Greek bonds ineligible for collateral for ECB loans after Standard & Poor’s last week cut the nation to junk status. Had Moody’s Investors Service and Fitch Ratings followed suit, Greece’s debt would have no longer been accepted under the previous rules, threatening to inflict further pain on the economy and its banks.

Bonds Gain
The yield on Greece’s benchmark 2 year bond fell 183 basis points today to 11.74 percent, after reaching almost 23 percent on April 28 on rising concern about a possible Greek default. The premium investors demand to hold Greek 10-year bonds over comparable German debt fell 50 basis points today to 5.44 percent.

The ECB’s Governing Council said Greece’s commitment to the terms of the bailout was “appropriate,” the Frankfurt-based bank said in an e-mailed statement. “This positive assessment and the strong commitment of the Greek government to fully implement the program are the basis, also from a risk management perspective, for this suspension.”

Today’s decision was a reversal for ECB President Jean- Claude Trichet, who began the year saying the ECB would not change its “collateral policy for the sake of any particular country.”

That prompted Christoph Rieger, co-head of fixed-income strategy at Commerzbank AG in Frankfurt, to say today’s announcement “leaves a sour taste with regards to the ECB’s long-term credibility.”

I just don’t know how you could destroy your own credibility any more than Trichet has. Saying, “indefinitely accept the country’s debt as collateral regardless of its country’s credit rating,” is tantamount to simply stating that you are willing to print come hell or high water and that you simply do not care about the rule of law, nor about the rules of nature.

Capital is run by people who must have confidence that their money is still going to be worth something in the future and they must be confident that the rules will not just change at the drop of some politician’s pin. What next? You have all the other PIGS to go. How long will Germany keep supporting it? This is placing great stress on their union, change is coming, and that change is driven by DEBT which is controlled by the central banks who are talking up “international governance,” the very thing and the very people who brought the world their debt to begin with.

Bonds are up sharply this morning as money stampedes back into something at least slightly recognizable. Below is a chart of the long bond futures, /ZB, where you can see that it is now breaking above its prior range:

Below is a 10 day, 10 minute chart of the SPX. Again you can clearly see the triangle that has formed. Yesterday’s volume on the Monday ramp job was absolutely pathetic. On this chart it is clear that lower than 1,188 is bearish:

The VIX, however, once again generated a market buy signal yesterday by closing back inside of the upper Bollinger. However, there is a clear uptrend going and until that uptrend is broken, it is higher volatility:

There has been a lot of concern expressed lately for the Chinese markets, deservedly so. They are now beginning to tighten their central planned economy and their markets are reflecting that. Below is a 3 year chart of the Shanghai Exchange, note the divergence from the SPX. Divergences between these two have been resolved with the SPX correcting:

On the one year daily Shanghai chart, a large triangle formed and is now broken to the downside, that is simply bearish:

Goldman Sachs bounced back to the $150 level yesterday but failed to get through the now strong overhead and is sitting at $148 per share. Again, above $150 is bullish, but it doesn’t look likely at this point and a break beneath $140 is bearish.

Factory Orders and Pending Home Sales are released at 10 Eastern this morning.

Yesterday the number of new highs on the NYSE decreased significantly, that is a bearish divergence against price. The market is now open and is already setting a new low and breaking that triangle to the downside. The VIX opened back above the upper Bollinger and is making new highs. That is all bearish for the market...

Eagles – Already Gone:

Monday, May 3, 2010

Morning Update/ Market Thread 5/3

Good Morning,

Equity futures are higher in overnight action. Below is a 5 minute chart of the DOW futures on the left, and 15 minute chart of S&P futures on the right. Friday’s selloff did quite a bit of damage, but it did not make a new low. The key for the short term will be which direction the market moves out of the current small consolidation pattern. If it breaks to new lows below /ES 1,176, then it is bearish short term, however if it breaks higher as expected then it is equity bullish in the very short time frame:

McHugh has a wave count that requires one more move higher – that would fit the 90% odds of a Monday morning ramp. That wave, if his read is correct, may or may not go on to reach new highs. Regardless, the overall formation is bearish in the intermediate following this last wave higher.

Both the dollar and bonds are significantly higher over the weekend, despite Greece accepting $146 Billion in shameful and disgraceful indebtedness – chains created by the world’s central bankers for which the people of Greece will be eternally laboring on the banker’s behalf. The Euro is actually much lower and is forming a flag that looks bearish for the Euro. The direction of the dollar and bonds is not a positive for equities.

Meanwhile oil and gold continue to rise, yet other more industrial commodities, like steel, continue to look structurally weak. Gold, on the other hand, looks extremely bullish like it is going to challenge new all time highs.

I continue to think that the XLF will significantly impact market direction. Goldman is up as they attempt to regain the $150 level which is now overhead resistance. Should Goldman get beneath $140, it is quite bearish, above $150 becomes more bullish.

Citizen spending rose in March by .6%, the sixth consecutive increase and now up 2.9% year over year. Meanwhile income was reported up .3% for March. Obviously those figures are coming off the total freeze of last year, not very impressive compared to the backdrop of a nearly doubled stock market. With spending outpacing incomes again, what does that tell you about the savings rate? Down again…
NEW YORK ( -- Personal spending rose for the sixth month in a row during March, while income also increased, according to government data released Monday.

The Commerce Department said individual spending rose 0.6%, or $36 billion, last month after an upwardly revised 0.5% increase in February.

Personal income climbed 0.3%, or $32.3 billion, in April following a 0.1% rise the month before. Both figures matched estimates from economists surveyed by

The report also showed that personal savings as a percentage of disposable personal income, known as the savings rate, was 2.7% in March. That's down from 3% in February.

Motor vehicle sales will be reported throughout the day, Construction Spending and the Manufacturing ISM are released at 10 Eastern.

The oil spill in the Gulf is turning out to be a very significant disaster, I don’t think that people have fully grasped the significance. If they are not able to get it contained fairly soon, and if it is leaking at the higher rates being mentioned, then it very well could turn out to be very significant to the macro-economy, not to mention the environment, especially if it is not contained to the Gulf. Meanwhile BP and Transocean (RIG) are both plummeting as an army of lawyers are deployed.

Keep an eye on this as it develops as the costs are going to continue to elevate as it grows, many industries will be affected.

I find the following article to be very interesting regarding Australia imposing a “super” tax upon miners. This is going to have a huge impact on BHP and Rio Tinto along with other miners who do business Down Under:
BHP, Rio Shares Drop on Australian Mine ‘Super’ Tax

May 3 (Bloomberg) -- BHP Billiton Ltd. and Rio Tinto Group, led declines in mining stocks in Sydney trading on concern Australia’s plans to impose the world’s heaviest tax regime on resource companies will cut billions from profits.

BHP and Rio fell the most in 3 months after Australia announced the so-called super tax yesterday. The 40 percent tax on resource profits will start from 2012 and raise A$12 billion ($11 billion) in its first two years. BHP, with 51 percent of its assets in Australia, said taxes on its operations there will increase to 57 percent in 2013 from 43 percent now.

“These proposals seriously threaten Australia’s competitiveness, jeopardize future investments and will adversely impact the future wealth and standard of living of all Australians,” Marius Kloppers, chief executive officer of BHP, the world’s largest mining company, said in an e-mailed statement.

Australia, the world’s biggest iron ore and coal exporter, is now the most highly taxed mining nation, reducing its competitiveness, Citigroup Inc. said. The move may reduce BHP’s earnings by 17 percent and Rio’s by 21 percent in 2013, UBS AG said today in a report.

BHP traded 3 percent lower at A$39.53, its biggest decline since Feb. 5, at the 4:10 p.m. Sydney time close. Rio, the third-biggest, declined 4.3 percent to A$69.00., also its biggest fall since Feb. 5.

Credit Swaps
The cost of protecting Rio Tinto and BHP bonds against default surged to the highest in almost two months. Credit- default swaps on Rio Tinto jumped 7 basis points to 83 basis points as of 4:34 p.m. in Sydney, the highest since March 5, according to Nomura Holdings Inc. and CMA DataVision in New York. Swaps on BHP rose 4 basis points to 64 basis points, the highest since March 8, Nomura and CMA prices showed.

Australia, I’m sure, doesn’t want to just give away their natural resources for free, and of course that wouldn’t be appropriate. However, Australia has been much heralded lately as being in the sweet spot to feed Asia and has done relatively well compared to other nations that possess debt based money systems. Their debts are, however, very high and they need revenue to service their own never ending growth requirements which emanate from living inside of their own debt backed money box.

This is a clear example where higher taxes to service those debts will translate into lower corporate earnings. The productive capacity of those companies, and the productive capacity of those natural resources are being used to service debt… and just whose hands hold the debt? You guessed it – the very central bankers who created the debt based system with NO productive effort. If you can’t follow the money trail here, then you are a banker’s best buddy. It does not have to operate like that at all, each country should be producing their own sovereign, non debt-backed money.

This is what happens following high levels of debt and rising taxes are clearly a trend that is going to be impacting the future. Austerity in the form of dramatic cuts and higher taxes will hurt Greece greatly as well. They had a choice, and unlike Iceland they made the wrong one for their long term wellbeing. The pressures that are about to be forced upon the people of Greece will lead to “other” events. And we still have all the other already indebted countries to go. Curing debt with debt will not work in the long run, it will end in disaster.

I read several articles this weekend on the “miracle” that is China. More people are talking about the false statistics and unchecked growth. This weekend Marc Faber joined the ranks of those saying that it has gone too far:
China May ‘Crash’ in Next 9 to 12 Months, Faber Says

May 3 (Bloomberg) -- China’s economy will slow and possibly “crash” in the next nine to 12 months, Marc Faber, the publisher of the Gloom, Boom & Doom report, said.

“The signals are all there, the symptoms of a major bubble are all there,” Faber said in a Bloomberg Television interview from Hong Kong. “The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.”

The Shanghai Composite Index has plunged 12 percent this year, the fourth-worst performer among 92 gauges tracked by Bloomberg globally, as the government stepped up measures to cool the property market and ordered banks to set aside more deposits as reserves.

The latest increase of bank reserve ratios came yesterday after earlier moves failed to halt a record surge in real estate prices. In March, prices rose 11.7 percent across 70 cities from a year earlier, the most since data began in 2005.

The clampdown on property speculation may prompt investors to turn to the nation’s stock market, Faber said. Still, shares are “fully priced” and Chinese investors may instead become “big buyers” of gold, he said.

Faber is now seeing the signs of a bubble there, duh. However, his timing has been good and he is now braving a timeframe on a crash in China within the next year. Think the U.S. will avoid the fallout should that occur? I don’t.

On Friday the VIX closed back above the upper Bollinger bands. That followed the market buy signal that occurred Thursday when it closed inside of the Bollinger range:

It may close back inside that range again today, that would reconfirm the market buy signal. This conflicts with the wave count that McHugh is tracking and makes the intermediate term less certain for me. I still regard the market as extremely overextended, I see nothing but threats and continue to believe that debt, and who controls it, will continue to anchor the world’s economies – it will most definitely not set them free.

Deep Purple - Smoke On The Water