Saturday, September 25, 2010

Multitudinous Self-Perpetuating Spirals of Complexity…



Complexity, it’s an ironic enigma cloaked in politics.

If you think that opening line’s hard to follow, you can get your head on straight by reading some terrific articles published by Ashvin Pandurangi on his new Simple Planet Blog mockingly located at www.peakcomplexity.blogspot.com.

The irony struck me about 30 minutes into Ash’s latest piece, A Complexity Manifesto, that it's taking entirely too long to comprehend this wonderful piece on complexity discussing how the world is overly complex but yet it's quite possible that the solutions are really very simple.

And I let Ash know that it’s NOT his fault! His articles are well written, substantive, and well… long. And further more, he’s right! Yet, I found myself running short on time and skimming/ glossing over his solutions to get to the end. I’m sure you’ve been there yourself, perhaps it was the first time you tried to read Freedom’s Vision? Snore, head nod, chin bounces from chest…

This is the exact same problem I (and everyone else) have in presenting SIMPLE solutions to the complex problems confronting our nation and economy. The solutions don’t seem so simple, not that the solution is complex, but that to address an overly complex system you must describe how you’re going to solve that complexity, and it’s NOT simple! Are your eyes glossing over yet?

In fact, the biggest critique of Freedom’s Vision is that it doesn’t fit into a 15 second sound bite! A valid critique, one for which I have not yet found the answer – can anyone help? [Please submit your proposal in triplicate, not to exceed 78 pages, in .pdf form to any of the following four email addresses, thank you!]

Here’s just a portion of the response Ash gave to my blatantly over-simplified critique:
“The system itself is designed to make increasing complexity the least path of resistance. I recently wrote a short piece called "Tweaks at the Margin", where I just focused on the fact that our leaders want to keep making small tweaks here or there to our existing systems, because its politically and economically convenient in the short term. The bush tax cuts debate, financial reform, HC reform, stimulus, monteary policy, etc. are all examples of that mentality. Ironically, adding on more complexity becomes the simplest thing to do.”

And with that one simple paragraph, Ashvin really has summarized a big part of the complexity paradigm. Yet paradoxically, I wonder which was it that came first, the chicken or the egg? Could it be that I was wrong in thinking the root cause of over complexity was the never ending growth mantra created by the central banker debt-backed money paradigm that created all the complexity in the first place! Not to mention the obscure ownership trail of the completely private "Federal Reserve" where all dollars lead back to only a few private individuals! But perhaps I’m over-thinking it?

Remember article after article about the Math of DEBT, Death by Numbers, Debt Saturation, the Diminishing Productivity of Debt, and how the math simply doesn’t work? Well, it turns out that I was using far too many facts, figures, graphs, simple arithmetic (like addition), and words mostly not comprehended by the masses. This was thoroughly too complex, as effective cerebral cortex metabolic absorption transfer rates are entirely blocked, it turns out, by having too much corn syrup in a person’s diet.

What I discovered today by reading Mark McHugh’s blog, Across the Street, is that I should have been using Sesame Street characters with my charts! It’s true! This one simple chart eloquently captures exactly what I’ve been trying to say all along – that incomes cannot support debts! But I know you probably didn’t read that, and most of us have far too many histamine producing, free-floating, vascular inflaming corn based particles in our bloodstream to comprehend it, so take a look at the chart and it will all make perfect sense!



Ahhhhh… what a great chart, and a great article for the masses! So simple, so short, so un-complex-like! And here I was about to resort to pictures of half-clad beauties carrying assault rifles just to get the masses’ attention. But I’ll leave that for our political candidates and those with Presidential aspirations. Me and Ash can now rest easy knowing that simple solutions are soon going to be flooding our inboxes, mine can be found at www.economicedge.blogspot.com, or www.swarmusa.com, or time4changenow@comcast.net, or nmartin@swarmusa.com, and Ash can be found at www.simpleearth.blogspot.com (his Peak Complexity blog), OR, you can go to “My Blog List” at my blog, www.economicedge.blogspot.com, and scroll down 3.6 pages (depending on screen size and resolution), looking in the right hand margin and you’ll find it there – that is if you can still remember what “it” is that you’re looking for. Glad we could simplify the situation for you.

PS - I hear that insuline can help. Thank you for supporting our corporate sponsors and don’t forget to send the .pdf in triplicate, thanks!

Friday, September 24, 2010

Morning Update/ Market Thread 9/24

Good Morning,

Equity futures were ramped upwards all night long and spiked higher on the Durable Goods report this morning despite it being overall worse than expected. Bonds are sharply lower, the dollar is sharply lower, oil is higher, and gold set a new record, this time breaking the $1,300 mark.

Once SPX 1130 was broken again, more short covering fueled this morning’s spike. While there is obviously record amounts of bullish sentiment in the markets, there are also a large number of non-believers, like myself, who are ready to short weakness. That was obvious as we first broke 1130 yesterday and the put/call ratio zoomed to more than 1.50! That was an indication that too many were shorting 1130, and thus the market promptly reversed. The bears were forced to cover, but then as that pressure subsided, the market eased back down to close below that level. This morning’s spike may be indicative of funny business as the FX markets look very volatile. The Yen, for example had a huge spike overnight that then rapidly came off, as in all of it. This Yen strength is despite massive intervention by the Japanese to force Yen weakness (down on this chart is Yen strength):



Yesterday the dollar bounced and tested its break down from the neckline of its H&S pattern. Today it has broken down to new lows. This pattern is confirmed and valid, it has a target of 71/72ish which can set off a chain reaction of even lower targets as I discussed previously. A falling dollar is not good for Americans, and no, the markets will not appreciate the knock-on affects as corporate earnings will eventually suffer dramatically for it:



Durable Goods came in at -1.3%, this is down from positive .3 the month before and it is below expectations of -1.0%. However, ex-transportation, new orders rose 2.0% and that is what the bulls are using as today’s excuse to use their POMO money in their HFT machines. Yes aircraft orders are volatile, but it’s about the only thing we can still make in America (and actually very large portions of our aircraft are made overseas with those parts only assembled here in America). When the sale is made, that sales figure in dollars counts as if the whole thing were made here and it is most certainly not. And here’s another news flash, the aircraft manufacturers have greatly overestimated future global demand as demographics, overall rising energy costs, debt saturation, and less purchasing power are dragging potential customers into the abyss. Here’s Econospin:
Highlights
Today's headline number for durables disappointed a bit but ex-transportation showed broad-based strength. New factory orders for durable goods in August dipped 1.3 percent, following a 0.7 percent rebound in July. The August decline was somewhat more negative than analysts' projection for a 1.0 percent decrease. July's figure was an upward revision from the prior estimate of a 0.4 percent increase. Excluding transportation, new durables orders gained 2.0 percent, following a 2.8 percent drop in July.

The reversal in overall orders in August was led down by the transportation component which dropped 10.3 percent, following an 11.6 percent boost in July. Nondefense aircraft plunged a monthly 40.2 percent after surging 69.1 percent the month before. Defense aircraft orders slipped 2.7 percent in August while motor vehicles declined 4.4 percent.

Other components generally posted healthy gains. Primary metals were up 2.4 percent; fabricated metals, up 1.0 percent; machinery, up 3.9 percent; computers & electronics, up 3.8 percent; electrical equipment, up 0.5 percent; and "other," up 0.1 percent.

Business investment in equipment is on a volatile uptrend. Nondefense capital goods orders excluding aircraft in August rebounded 4.1 percent, following a 5.3 percent fall in July. Shipments for this series advanced 1.6 percent in August after edging up 0.1 percent the month before.

Year-on-year, overall new orders for durable goods in August improved to up 11.2 percent from 9.7 percent in July. Excluding transportation, new durables orders came in at up 12.9 percent, compared to 10.6 percent the previous month.

The good news is that today's durables report shows manufacturing gaining strength outside of transportation-and businesses still investing in equipment. On the release, equity futures nudged up but essentially were little changed. But stock futures then gained traction after taking time to digest the numbers.

Once they fully digest this report, they will realize that orders are adding to inventory at exactly the wrong time. Managers who bought into the “recovery” are only going to be met with consumers who still cannot buy and who still do not have nor want more access to the debt pusher’s credit. Buying into an overall negative and worse number than expected is simply dangerous.

New Home Sales data is released at 10 Eastern this morning, last report was a depression print of only 276k, and the consensus is expecting a rise to 290k. That may happen, when you are dealing with numbers that are only a quarter to a third of the prior numbers, a bounce off the bottom a little is not difficult, but that won’t mean the market has turned around. Just as a reminder of where we are in the Option-Arm reset debacle, we are sitting on a peak just prior to a short term valley which will accelerate into early 2012:



Meanwhile, the NDX is pressing on to new highs as I type. This is the exact same type of rotation trade nonsense that pushed the indices to insane levels just prior to the ’07 top. The momo tech stocks, like Apple, are being used to run a thinner and thinner segment of the market higher. Breadth is narrowing as this occurs, the number of new 52 week highs has been contracting as a sign that few stocks are participating.

Over the past few days, the XLF and the Transports have been relatively weak. The market will not continue to climb without them. Below is a daily chart of the XLF, note that it closed below both the 50 and 200 dma’s. Also note the rising volume on the decline:



If we go onto make new highs here, it will not change my thinking one iota. The markets are very dangerous, I see a lot of wave C psychology from politicians and the political ads are all slamming incumbents for their support of bailouts and wild spending ways (immoral actions bringing deserved karma payback). Budgets are far from balanced and pressure is mounting to knock off the nonsense. Behind the scenes Bernanke and his private banking bosses are pouring dirty money into the stock market using very unscrupulous manners in so doing. They will lose the battle in the long run, of that I have absolutely no doubt.

Keep in mind that today is Friday and that the now Pavlovian routine is to ramp the markets in advance of the Monday morning ramp.

Thursday, September 23, 2010

Graham Summers - Forget a Recession, The Empire is Crumbling

This is pretty negative sounding from Graham, but don't let the truth get in the way...

Forget a Recession, The Empire is Crumbling

Written by Graham Summers

I look around me and I see an Empire in Decline.

The US economy is clearly in a depression… not a recession, not a recovery, but a DEPRESSION of a moral, social, and financial nature.

More than 40 million Americans (12%) are on Food stamps. Nearly one in five of us are unemployed of underemployed. Folks go to Wal-Mart at 11PM waiting for their government checks to clear at midnight so they can buy baby formula, milk and other necessities.

Three out of every five Americans are overweight. One in five are obese. Indeed, there are only two areas (one state, Colorado, and Washington DC) where obesity rates are under 20%.

Nearly three in four of us don’t get enough sleep. Almost one third of us report having trouble falling asleep EVERY night. And almost half of us report that day-time sleepiness interferes with normal activities including work.

Half of marriages end in divorce. One out of ten married couples report sleeping alone. The average American watches 28 hours of TV a week (enough to qualify for a part-time job). Two thirds of us eat dinner while watching TV, preferring the fake, sensationalized lives of others to engaging with our own families.

The TV and media are filled with foul, ungodly images of sex, violence, and hate. The most watched shows of the last decade all feature ordinary folks becoming superstars in lottery-esque competitions (American Idol, Survivor, Who Wants to be a Millionaire, etc) OR crime sagas detailing the most sordid and disgusting elements of society (CSI, Law and Order, etc) OR amoral social dramas in which notions of personal responsibility, fidelity, and common decency are unknown (Desperate Housewives, the Bachelorette, etc).

Today, brain dead, vapid human beings who have contributed nothing to society are idolized and followed as though they invented the wheel. We’ve actually got two industries devoted to presenting the illusion and reality of celebrity: Hollywood shows the photo-shopped, CGI-enhanced, scripted version, while the paparazzi and weekly glossies reveal the drug-addicted, affair-crazed, family breaking, soul-less emptiness.

Sex or violence are plastered on virtually every flat surface available. Even the check-out lines at the grocery store feature endless images of barely clothed women along with headlines sensationalizing gruesome behavior, right out in the open for children to see. And if the kid can actually read the headlines… God only knows what ideas this stuff is putting into their heads.

Financially, we’re all pretty much bust or going bust (except those on Wall Street).

New home sales in July were a RECORD low. Not record as in for the year, but the lowest since 1963. The talking heads are high fiving because sales improved in August, but failed to note that they were still DOWN 19% from August 2009 levels.

Americans two primary assets for retirement (stocks and their homes) have both been absolute disasters. Home prices are down 30%, stocks haven’t produced gains in over a decade. Every moron on TV talks about the Dow 10,000 like it’s a miracle. But when you adjust the Dow for inflation, (using the BLS’ ridiculous CPI measure) the Dow is SUB-500 in terms of purchasing power.



Our money system is controlled by an elite banking oligarchy fronted by academics who have never run a business, invented anything, or had any interaction with commerce aside from vying for tenure. Our currency is now worth less than 1/20th of what it was a century ago. And we are ALL in debt up to our eyeballs on a personal, corporate, local, state, and federal level.

Heck, even USA TODAY (not exactly the cutting edge in financial research) notes that in order to pay off our current liabilities, every US family would have to pay $31,000 a year… for 75 YEARS!!!

And we’re talking about an economic recovery?

According to David Rosenberg of Gluskin Sheff:

Wages & salaries are still down 3.7% from the prior peak;
Corporate profits are still down 20% from the peak;
Real GDP is still down 1.3% from the peak;
Industrial production is still down 7.2% from the peak;
Employment is still down 5.5% from the peak;
Retail sales are still down 4.5% from the peak;
Manufacturing orders are still down 22.1% from the peak;
Manufacturing shipments are still down 12.5% from the peak;
Exports are still down 9.2% from the peak;
Housing starts are still down 63.5% from the peak;
New home sales are still down 68.9% from the peak;
Existing home sales are still down 41.2% from the peak;
Non-residential construction is still down 35.7% from the peak.

The American Psychological Association reports that 73% of Americans cite money as a source of significant stress. Personal bankruptcies have fallen 8% month over month from July to August. However, August 2010 bankruptcies are up 6% from August 2009… so much for the recovery.

And yet, despite all of this, assumedly intelligent people write op-ed articles and appear on TV claiming that things are swell in the US, that we’re actually OK and that the recession is over. Some of these people even have advanced degrees or have won international prizes for economics.

Let’s be honest. Forget recessions, forget even Depressions, the US is an empire in decline.

You can literally see it crumbling right in front of you. Just start looking at how people live, eat, and act on a day to day basis. Look at how our Government runs itself, how it manages our affairs, how it spends our tax Dollars. Look at how our justice system works, who it protects and who it punishes.

It’s all out there, right in the open for you to see. You don’t need an expert degree or some kind of advanced education. It’s OBVIOUS to anyone who bothers looking around.

The fact we don’t admit it doesn’t mean it’s not true.

Best Regards,

Graham Summers

Morning Update/ Market Thread 9/23

Good Morning,

Equity futures are sharply lower this morning. Bonds are higher, the dollar is higher, the Yen is stronger, oil is down, and gold is slightly higher. While all the signs have been there, what I don’t like are all the gaps in the charts, today’s opening will be another.

The futures declined sharply overnight as sovereign debt issues continue to plague Europe. Ireland’s spreads have blown out to record highs. Germany lowered the amount of debt it’s willing to hold and told the IMF yesterday that it would not be participating in extending emergency debt beyond the year 2013. Hey, at least someone can at least pretend to be an adult. The IMF is nothing but a mobster gang who need to be disbanded at a minimum. The central debt pushers are far worse than drug pushers, they kill more people and do more economic damage by far.

I have to mention yesterday’s House Price Index report due to the fact that it showed a negative month to month price drop of .5%, and year over year price drop of 3.3%. Both figures are a sharp acceleration in price downwards. But what really gets me upset is the revision to the prior month which changed a -.3% print into a negative 1.2% month over month print – that’s a 400% revision! Again, all the data is always reported better than it actually is, and then it gets revised downwards. Revisions of this size are criminal as they cause huge distortions and are leading to a loss of confidence in our data and in our entire economic system.

Speaking of confidence, yesterday’s breakdown of the dollar was major. If that dollar weakness trend continues, Americans are in for BIG Trouble – note the capital T! The H&S pattern in play targets 71 on the dollar index, more than a 10% drop in purchasing power. Will your wage increase by an equal amount? Of course not, wages are falling. As a falling dollar produces higher costs for food, medical care, and most items that you NEED, it will rob Americans of their ability to pay for other items. It will most certainly NOT lead to economic prosperity. And if that 71 target is reached, there is an even larger pennant in play, as pointed out by Scott in our daily thread yesterday, that would target in the range of 29 to 50 on the dollar index. This is a very ominous pattern on the monthly chart, I hope our "leadership" is paying attention, however I know that people like Ben Bernanke are unprepared as their theories have not been sound, they have failed to account for exponential debt growth, debt saturation, and the loss of monetary confidence that follows their theories which have ALWAYS failed throughout history:



THAT would be a true disaster, no one would be unaffected, I hope to heck that does not happen, but I think we should all be prepared in case our leadership is dumb enough to make it happen – it may already be too late to change the outcome, but don’t expect those types of move to happen overnight, they will take a long time to play out. I know it’s possible to change the trend short term, all they have to do is stop propping up stocks and bring in some adults who start throwing the criminals in jail, running the HFT machines and dark pools into the history books, and in general simply stop the criminal behavior. That is step one. We must restore confidence and stop destroying it with phony reports and phony money.

As if sovereign debt problems weren’t enough, and as I suspected, our weekly Jobless Claims rose over the past week as we got beyond the Labor Day affected weeks. The report for last week came in at 465,000 initial claims, that’s up from the prior week’s 450k report and the consensus that was also calling for 450k. Of course the prior week’s number was revised higher once again, this time to 453k. Here’s Econospin:
Highlights
Labor Day caused a bump in the jobless claims series. Initial claims in the September 18 week, which doesn't include Labor Day, rose 12,000 to a higher-than-expected 465,000. The prior week, which includes Labor Day, was revised 3,000 higher to 453,000. Adjustments factor in a low level of filings for the shortened week and a high level in the following week as government offices catch up on the work. But the back-up this year exceeded the adjustments, making for the surprise gain and raising questions on how much initial claims are actually improving. The four-week average of 463,250 is down in the week and is down more than 10,000 from a month ago to point to month-to-month strength for the September employment report.

Continuing claims are down 48,000 in data for the September 11 week. Here the four-week average, at 4.520 million, is little changed from the month-ago comparison. The unemployment rate for insured workers did slip one tenth to 3.5 percent which however follows a tick higher in prior weeks.

Though Labor Day clouds the data, a 465,000 initial level compares favorably with summer levels. Stock futures edged lower in initial reaction to the report.



First of all, this week’s report is the first WITHOUT the Labor Day fun and games. Again, everything gets revised higher, not lower – thus you can count on this number being higher next week as well. If they are setting up expectations for a better monthly Employment Report, they are setting themselves up for disappointment. The September report, out October 8th, is very likely to disappoint due to the seasonal lack of Birth/ Death model additions. If they remain consistent, I am looking for a negative print that will surprise those not paying attention.

Existing Home Sales and Leading Indicators are released at 10 Eastern this morning…

Stocks are now below the key 1130 level. All the signs were there, now the question is how far does it go? Well, there are gaps all the way back down, so I believe that the odds favor the entire up move to come off. If we’re talking Elliott Wave, it is highly likely that wave 2 is now over and this could very well be the beginning of wave 3. If it is, we are going to see lower lows in the not too distant future – that is my thinking, it is the highest probability case. We hit far too many bullish extremes on this latest wave up. There were gaps left all over the place as the markets have turned into nothing but machine driven hype. We are all going to pay a very expensive price for such foolishness, our collective mentality seems to be lower than a narcissistic 12 year olds’… never put off to tomorrow what you can borrow or steal today.

Note that yesterday's action finally broke the NDX's ridiculous uptrend:



The Transports were relatively weak yesterday. The XLF has again failed to clear the 200dma, as you can see in the daily chart below - note the increasing volume on the decline. BANK is far weaker:



I want to point out that even though yesterday’s decline was relatively shallow, it combined with this morning’s action, does confirm the top looking candlesticks from Tuesday. Despite the fact that prices were still near their highs, we have sell signals all over the place, divergences all over the place, and the McClelland Oscillator fell all the way down to only positive 12 - it will likely turn negative today. A negative McClelland Oscillator combined with a valid Hindenburg cluster is a huge sign.

Wednesday, September 22, 2010

Morning Update/ Market Thread 9/22

Good Morning,

Equity futures are lower this morning (it’s allowed, it’s Wednesday). Bonds are aggressively higher, the Yen is considerably stronger, oil has turned higher, and gold is setting new all-time records just under $1,300 an ounce (priced in gold, the stock market has gone nowhere over the past couple of months).

The dollar has broken below the 80 support level which is also the neckline of the Head & Shoulders pattern I showed yesterday. With the neckline broken, this pattern is now confirmed and the target is 71ish, very near the all-time low in the dollar:



Also note that the other H&S pattern I showed recently, oil, has failed to break the neckline.

Yesterday’s FOMC announcement (private banks telling the people of this nation what they’re going to do to rob our purchasing power) did not include QE2 as many were expecting, instead it contained lip service about how they will take action if the economy continues to erode. This is wave C at its finest, no more backbone to act, they have a monkey on their back called DEBT, while at the same time they have a confidence issue with our money – note the record highs in gold. The big bugaboo to get in their ball of wax was the Japanese who were forced to try to stop the Yen carry unwind by trying to devalue the Yen. The Yen can only get less valuable against other currencies, that means the dollar must rise in value for that to happen. But we can’t have the dollar rise in value or debt becomes a bigger burden, so we are all in a race to devalue our currencies. In fact, you could call it an economic competition or even a war. This has the potential to get very nasty, very quickly. A large percentage of the move lower in the Yen following their intervention is already gone.

Somebody’s going to lose this competition, and I have a feeling it’s everyone in the middle-class in all the debt saturated countries. Should this go to extremes, which is highly likely, we could see the cost of needs like food skyrocket while wages fail to move. Not good, and our own immoral system is the ship that brought us here. We need a new ship, and changing sleepy Larry Summers out for another Keynesian isn’t going to do it – not that I’m unhappy to see that national disgrace leave. Bring in that other fine piece of work, Paul Krugman, and you best own a bunch of gold, as that Nobel Laureate is as clueless as the day is long.

The still worthless MBA purchase index fell 3.3% in the past week, with the refinancing index falling another .9% following last week’s 10.8% dive. Here’s Econospin:
Highlights
The index for mortgage purchase applications fell 3.3 percent following a 0.4 percent slip in the prior week. The index had been on a climb in earlier weeks. The refinance index fell 0.9 for a third straight dip. Refinancing made up 81 percent of total applications. The composite index, which combines the refinance and purchase indexes, fell 1.4 percent. The average rate for 30-year mortgages fell three tenths to 4.44 percent. Existing home sales for August will be posted tomorrow at 10:00 ET.

“The index had been on a climb in earlier weeks???” No, it did a dead-cat bounce off all-time historic lows – it’s all in how you spin it, lol. Mentioning a short uptrend without mentioning your position in the big picture is nothing but spin. The FHFA House Price Index will be released this morning at 10 Eastern.

The market potentially put in a top with yesterday’s action, of course we’ll need confirmation with prices breaking below the 1130 level that is currently support. Yesterday’s action produced a “spinning top” candle stick that is often seen at tops. Below you can see the DOW’s spinner is very similar to the spinner that marked the April top:



There are now many strong divergences and yesterday produced stochastic sell signals in most of the major indices despite the fact that there is really no down price movement. Indicators are extremely overbought, the daily and weekly stochastic most certainly are. We now have 100% of DOW stocks above their 30 day moving average. Investor sentiment dropped to only 24% bearish, that is a record low, even lower than the 25% bear reading that occurred at the ’07 top. Monday produced more than 300 new 52 week highs, another extreme number reserved for tops. And no, I haven’t forgotten about the VIX sell signal which is still in play, nor have I forgotten the Hindenburg Omen cluster. I’m also watching the McClelland Oscillator which is coming down from very elevated readings, it won’t take much down motion to turn it negative once again. The rise above 1130 has no fuel behind it, no volume… that’s because it was contrived. The NDX is parabolic and it has left gaps every step of the way. Those gaps WILL get filled, and all parabolas eventually collapse.

All the signs are there. The brave will be getting short in increments, while the wise will wait for a break of the parabolic trendline. Only dumb money and the government with her proxies are still long, that would include mutual fund managers who also are at a record level invested in stocks – dumb. Of course mutual funds have always been losers, the same as all equities over long run – remember, the only reason anyone can say that stocks go up in the long haul is due to substitution bias, otherwise the indices would be at or near zero, all of them.

Speaking of stocks having a life cycle, take a look at the action of Adobe (ADBE) on the release of its earnings last night. Oh my, that’s a 21% collapse in the blink of an eye:



Adobe's report was not that bad, so this type of a reaction is telling us something about what's priced into the upcoming earning season.

Will they continue to attempt to intervene and drive the markets still higher? Oh yes, our own government has proven themselves to be quite nuts. It will not endure, however, as the pumpers are caught between a rock and a hard place. They are still saturated with their own debts, they cannot tolerate rising rates nor a rising dollar. Equity price is always the last to get the memo, but get it they will. Adios Sleepy Larry, here’s hoping that some day you and Hank Paulson will be bunk buddies!

Tuesday, September 21, 2010

Morning Update/ Market Thread 9/21

Good Morning,

Equity futures are roughly flat following yesterday’s POMO fueled HFT Presidential Super Coordination Monday ramp job. The dollar is down, the Yen is up, bonds are higher, and oil and gold are roughly flat. It’s nice to see so many real problems go unresolved, people suffering, and yet money wasted down the drain to get a 140 point rise out of the DOW. That only cost $5 billion, real nice. Nice appearance on the Obama channel, CNBS, and nice timing on the “recession is over” (in June of last year) nonsense. Disgusting all the way around, nothing but a prop man working on a façade. Only those who spent their childhood in the “resource room” actually buy it.

This morning Housing Starts came in at 598,000 in August, up from 546k, and higher than consensus of 550k. If you remember, last month was the worst report on record. Since this one is off the bottom is being touted as some sort of recovery – what a joke. It’s not even half of the level seen in 2007, and most of Augusts’ increase comes from the building of apartments (to house those losing their homes). Here’s Econoday:
Highlights
Housing starts showed unexpected strength in August with even the single-family component increasing. Housing starts in jumped 10.5 percent after rising a modest 0.4 percent in July. The August annualized pace of 0.0.598 million units clearly topped analysts' expectations for 0.550 million units and is actually up 2.2 percent on a year-ago basis. The gain in August was led by a 32.2 percent surge in multifamily starts, following a 36.0 percent increase in July. The single-family component rebounded 4.3 percent after dipping 6.7 percent in July.

Permits improved in the latest month, rising 1.8 percent after declining 4.1 percent in July. Overall permits came in at an annualized rate of 0.569 million units and are down 6.7 percent on a year-ago basis.

Today's report is probably better news for construction workers than for real estate brokers. The single-family component is up but still at a low pace but hard hats will be glad to get work at the improving apartment market. At a minimum, it appears that housing has stabilized and this is good news for equities which showed modest gains in futures on the release. Meanwhile, rates nudged up.



Sorry, this is nothing but another depression era print. A trend? Certainly not. There’s more housing data to come this week on Thursday and Friday as we’ll get new and existing home sales for August. Remember, August represents the last decent selling month of the year, sales normally trend lower from here until the spring.

Of course the FOMC announcement will be released at 2:15 Eastern today. Many speculate that the Fed will announce up to a $1 trillion “QE2.” If any of that is priced into the market, I think they will likely be disappointed as it would take a special breed of chutzpa to simultaneously declare an end to the recession while announcing a money printing campaign. Of course we can’t put anything past the criminals who are hell bent on sucking the life blood from the middle-class.

And if they do announce a significant Quantitative Easing program, then watch the dollar index. It’s been descending and is not far from fulfilling its smaller H&S target which is coincident with the neckline of its larger H&S neckline in the 80ish area:



I think this is interesting because we also have H&S patterns in play in the equities and also in oil as I showed yesterday. A break of 80 on the dollar would produce a target of roughly 71, which is very near the all time low seen in March of ’08. It seems improbable that both oil and the dollar would fulfill downside targets (but not impossible), so it’s going to be interesting to watch if not painful one way or the other.

Note that bonds and the action in the Yen do not support increases in equities today. Keep in mind that prices tend to be flat prior to an FOMC announcement and that a large percentage of the time the first move after the announcement is not the real direction.

The NDX has now entered a parabolic rise that is very unhealthy. It’s now been up 9 straight trading sessions and is up 12 of the past 13. This is sickness, not health… this type of action with gaps all the way up will not last, but that doesn’t mean it can’t continue even higher for awhile, it can. Many are touting the “breakout” above SPX 1131 as being strong and significant. In fact, it came on lower volume than Friday’s opex, and even lower than Thursday’s volume. That is most certainly not confirmation of a breakout, although the lopsided 92% up volume is yet another indication of HFT induced volatility (fueled by the largest POMO to date - $5 Billion).

Will the bums in office who are perpetrating and profiting from this type of destructive market activity be tossed out in November? You bet they will. Will it change anything? Not a chance. Not as long as we are living inside of the debt backed money and democrat/ republican boxes.

This latest rally is generating a lot of emotion… bullish euphoria by the bulls and panic/ frustration on the part of those who really understand the economy and market at this juncture, otherwise labeled “the bears.” Sorry bulls it’s all an illusion, a façade. The count remains the same, an a,b,c for wave 2 which has now retraced 61.8% of wave 1 down. Should wave c equal the length of wave a, then the target for the SPX would equal 1160ish. Will we continue the parabolic rise into that level? We’ll have to see what follows the FOMC meeting, but the action looks and smells like distribution to me. A concerted and coordinated effort to suck in whatever money the market can. That money will be destroyed, it is a waste and a crying shame. That our own elected politicians stump for it is outright disgusting – I could almost see the strings attached to Obama’s suit yesterday.

A quick story about a house I looked at this weekend – it is listed as a short sale. World-class view, okay 3,000 square foot house. An airline pilot paid $910,000 for it in 2005, full on bubble price over $300 per square foot. He has a wife and two very pretty girls. A pay cut was forced upon him (and most in the industry) and he has destroyed his retirement and investments trying to maintain the enormous payments on that house. He now cannot afford the basic upkeep on the place and stopped making payments on it at the beginning of the year. While I don’t know him, I know others who do, and know that he and his family are suffering greatly under very heavy stress. The house is going to enter foreclosure next month unless a short sale buyer is found soon.

Yes, he made a mistake. However, the grand illusion was in full swing. The illusion was created not by him, but by the bankers who absolutely know better and provided the fuel for the bubble. It breaks my heart to see this family suffer, and they will suffer for years and years. Yet we toss aside $5 billion to create a 100 point illusion on the DOW. It is sick, perverted, and it is twisted. Oh, and it won’t last.

Monday, September 20, 2010

Morning Update/ Market Thread 9/20

Good Morning,

It’s Monday morning, so the futures are ramped higher reminiscent of Ground Hog Day. Perhaps Bill Murray should be in charge of the SEC. Bonds are higher, the dollar is higher, gold set another all time high, and oil is lower.

I showed the H&S patterns on oil before, but the patterns are progressing, so I thought I’d show them again. There are two patterns in play, the smaller one playing out since May of this year is looking like the right shoulder of the larger one that stretches back to October of last year. The neckline of both are approximately in the $70 to $72 a barrel range. Prices are descending back to the neckline of the small pattern as you can see below:



On the longer term chart, you can see that the smaller pattern is the right shoulder of the larger pattern. A break of the $70 neckline would portend an eventual breakdown to about $53ish:



The completely unbiased National Association of Home Builders releases their Housing Market Index at 10 Eastern this morning. Tomorrow is Housing Starts and then the FOMC announcement. Some are expecting some sort of QE2 announcement from the Fed tomorrow, some aren’t. The market may be disappointed if they don’t. I think they are the cause of the distortions and regardless of what they do, in the long run it won’t matter until the debt saturation is resolved one way or the other. The short term is an entirely different matter, so POMOs and low interest rates for everyone (except for you)! New and Existing Home sales data comes later in the week as do the “leading” Indicators.

Moody’s reaffirmed the triple-A rating of the U.K. this morning. The rating agencies are worse than worthless, they actually cause much damage to investors and distortions to the entire financial system. Any future reform MUST include an overhaul of those agencies. Ireland and Portugal are the latest to be experiencing spread stress over their debts. The IMF is trying to get involved with “saving” Ireland by issuing them more debt, LOL. Ireland has a couple of bond issues they must sell this week, what happens there will be widely watched and could move the markets. Of course I’m sure that the central bankers will come up with some way to make up artificial demand for their debt to mask over their problems for longer, we’ll see.

The markets went exactly nowhere last week, failing to get over SPX 1131 overhead resistance. I think that prices may hang out in this area until the FOMC announcement tomorrow, but they should find a direction this week. Once again I want to note the weakness of the financials. They continue to be a drag on the entire market. Note the XLF below is making lower highs and on this run up has failed to penetrate the 200 day moving average:



BANK, the Nasdaq bank index, is considerably weaker, nowhere near the past three peaks:



The markets are extremely overbought still, and despite no downward momentum, some of the indices are already producing sell signals on the daily stochastic. Divergences are apparent and growing, and several of the sentiment indicators are at or near record bullishness. In fact, investor sentiment is at levels higher than they were prior to the ’07 top! It should be an interesting week, stay “tuned.”

Tom Petty – The Waiting:

Sunday, September 19, 2010

Uncle Jay Explains...

Not to worry, boys & girls, Uncle Jay explains what all the panic is about in politics. He's been taking note of who's really in charge...