Wednesday, January 12, 2011

Morning Update/ Market Thread 1/12

Good Morning,

Equity futures are higher this morning with bonds lower, the dollar lower, oil higher ($91.62), and gold lower ($1,380). Don’t forget that small movement in the McClellan Oscillator on Monday, yesterday’s move was not large enough and thus a large move today is likely.

The Treasury will release the latest POMO schedule at 2:00 Eastern today.

The still worthless and still near all-time historic lows MBA Purchase Index fell another 3.7% in the past week, here’s Econoday:
Purchase applications fell a steep 3.7 percent in the January 7 week, a dip that threatens to sink what has been no better than a flat trend. Week-to-week adjustments on the data, however, are severe given the shortened prior week. The four-week average for the purchase index is down 1.0 percent. Refinance applications rose 4.9 percent in the week with 30-year mortgages averaging 4.78 percent, down four basis points in the week.

The housing market is still a mess, and don’t forget that we are in a temporary lull in Option-Arm reset activity until about March when resets launch into a peak. Bad timing for higher mortgage rates as all those people must either pay way higher monthly payments or refinance their homes that are most likely deeply underwater:

That will pressure upper-end home prices which in-turn will pressure banks and overall consumption.

This doesn’t phase Goldman Sachs, however, where analysts there must see nothing but POMO and HFT trading from now until the next coming of Jesus! They just issued their forecast stating that they expect U.S. stocks to rise 18% this year and that the bond market will “do okay.” Maybe, but then again maybe historic divergences and extreme overvaluation catch up to the market? With Goldman you never know whether or not you are being set up for distribution, but in this case that’s exactly what I think their latest marketing disguised as a “forecast” is all about. Made, not unexpectedly, during wave 5…

Both Import and Export Prices rose an unconscionable amount in December – Exports rose .7%, while Imports rose 1.1% for the month, pushing year over year Export Prices up 6.5% and Import Prices up 4.8%! While I believe these figures are understated, they are catastrophically high and completely unsustainable. Compare those to income figures and you’ll see that this cannot last for long. It is strictly a monetary phenomena, one that pressures the middle class as well as business margins. Here’s Econoday’s summary:
Inflation pressures for input prices are tangible but easing based on December import and export prices. Import prices rose 1.1 percent vs November's revised 1.5 percent rise (plus 1.3 percent first reported). The year-on-year rate is climbing, now at plus 4.8 percent. Prices of imported foods, feeds & beverages eased to plus 1.3 percent from November's plus 2.5 percent with industrial supplies at plus 2.8 percent vs plus 3.5 percent. These rates are significant yet there's little sign the increases are being passed through to final purchasers: import prices for consumer goods are unchanged while import prices for capital goods are up only 0.1 percent, the third straight 0.1 percent increase.

The export side likewise shows no significant pressure at the final goods level with consumer goods up 0.2 percent, down from November's 0.4 percent increase, and capital goods up only 0.1 percent. Exports of foods, feeds & beverages rose 0.7 percent, sizable but well below gains of 5.9 percent, 2.4 percent, and 2.0 percent in prior months. Year-on-year rates do show pressure, at plus 6.5 percent for total export prices and at plus 5.1 percent for non-agricultural prices for the largest increase since 1987.

Despite some negative details, today's report generally shows an easing in price pressures during December and points to no surprises for tomorrow's report on producer prices or Friday's report on consumer prices.

“Largest increase since 1987…” Hmmm, nothing bad happened that year did it? …As I watch the dollar dive…

Oh yeah, I forgot that Europe is saved! You know, since Japan and China are lending money to Portugal and all of their bond market sales are now likewise rigged, just like here in the United Fraudulent but Bankrupt States. But that truth-speak is incendiary, isn’t it? So maybe we just shouldn’t talk about it, right? I guess I shouldn’t even mention that the IMF is once again talking about raising their own self-imposed phony bailout limits, just like Congress must once again talk about raising our debt limits. Funny thing that if you follow both money trails that they lead to the same people in the same banks, and that the money in all cases comes from the same taxpayers. But I guess pointing that out would be inflammatory too. And in a quick conversation with a neighbor yesterday I had the joy of listening to him recite verbatim from the media how it’s a shame that the rhetoric “caused” that Jared kid to shoot up all those people.

By the way, where's all the media attention regarding the Omaha, Nebraska High School Vice Principal who was shot and killed by a 17 year old who also shot the school's Principal? I guess that was just caused by the "rhetoric" too.

Meanwhile the media barely discussed how Illinois just raised taxes by a historic amount on its citizens, and I’ll bet my neighbor is completely unaware of that fact, or the fact that a very large percentage of those taxes are needed to pay interest to the private banks who are very inappropriately, in my opinion, financing public debt:

Illinois lawmakers pass massive tax hikes

NEW YORK (CNNMoney) -- Illinois lawmakers on Wednesday approved major personal and corporate income tax hikes to bring the state's budget back from the financial abyss.

The state is facing a $13 billion budget deficit that must be resolved by the end of the fiscal year on June 30. This includes $6 billion in unpaid bills to social service agencies, schools, contractors and others. In addition, the state's pension plan is severely underfunded.

To address these shortfalls, the Illinois House and Senate approved:
Temporarily raising the personal income tax rate to 5%, from 3%.

Temporarily hiking corporate income taxes to 7%, from 4.8%.

Imposing a moratorium on new programs with spending growth capped at 2% per year, with the exception of increased school aid of more than $700 million.

The House postponed a vote on increasing the tobacco tax to $1.99 per pack, up from 98 cents. And lawmakers defeated a proposal to borrow $8.75 billion to clear the current stack of unpaid bills.

The state's Senate also approved a measure allowing the state to borrow $3.7 billion for the fiscal 2011 pension payment. The House approved this debt issuance last May.

Democratic lawmakers were racing to pass the tax hikes before the newly elected legislators are seated later Wednesday. Republicans, who gained ground in the November election, are firmly opposed to hiking taxes, preferring instead to cut spending.

The fiscal package remained in flux until the end. To gain support, Democrats scaled back the personal income tax spike to 66%, down from an initial proposal of 75%, and also reduced the jump in the corporate tax rate, which was originally set to rise to 8.4%.

The tax hikes, steep as they are, won't eliminate the state's deficit, since they are only expected to raise about $7 billion. Complicating matters is the defeat of the bond measure to cover the unpaid bills.

Uh huh… Historic tax increases – note that income taxes are going up from 3% to 5%! That’s a two-thirds increase, and it will barely cover half of their deficit! Now that’s bad math! And the truth is that by now having some of the highest taxes in the world, Illinois is going to drive away capital like nobody’s business – as in capital flight. This will make their income projections just plain old fashioned wrong, they will come up far short of their projections as jobs, money, and people continue to flee Illinois.

Sadly Washington State is not too far behind – we are $4.6 billion in the hole, more math that simply is impossible to fix within current frameworks. And note that the “FED” has said in very plain terms that they have no intention of helping the states. In fact, Ben Bernanke said that it’s simply not their business to help the states. But boy can they help the banks! DUH, that’s because the “FED” is nothing but a front for the private banks – and if people think that they are going to print even more money to bail out non-banks, then they simply don’t understand WHO the “Fed” is. Sure, Congress can bail out the states, but then we have even more massive federal deficits for which interest must be paid… to the private banks. See WHO is in the no lose position and WHO is in the no win position?

Boy we must like that position because no one is doing anything about it… SHHHHH, stop all that inflammatory rhetoric!

But I do believe in the power of positive thinking! Optimism is a necessary ingredient to moving forward. However, when confronting physics and math, there are certain realities that cannot be ignored least you get yourself into gigantic trouble. For example, you may stand on your rooftop flapping your arms in the belief that you can jump off and fly like a bird! However, that blind optimism might just get you into trouble, a very fitting analogy to buying today’s stock “market.”