Wednesday, January 19, 2011

Morning Update/ Market Thread 1/19

Good Morning,

Equity futures are lower this morning as Goldman Sachs (GS) and Wells Fargo (WFC) report weaker earnings that go along with weak economic data. However, in what is obviously a trend, the dollar is weaker breaking below support, and that is leading to oil that is now making new highs above $93 a barrel to go along with rising gold price. Bonds are lower again. Food commodities are soaring, corn continues to make new highs and has DOUBLED IN THE PAST SIX MONTHS, now rising 101% (wheat has risen 90%+, rice has risen 60%, and oats have risen 115%):

Overnight India took measures to attempt to cap food price. Many countries have tried, the harder they try, the harder they will fail. Those food inflation figures absolutely are destabilizing to the world, they are dangerous and they are lethal to real people, yet here in the United States we don’t see how our letting the “Fed” destroy the value of our money is destroying peace and prosperity throughout the globe – a tragedy. We cheer the overthrow of despot governments, but that will not help the starving people of the world… not until we change WHO produces and controls the quantity of money.

The unethical and completely hypocritical Mortgage Banker’s Association reports that it’s Home Purchase Index fell again in the last week by 1.9%. Here’s Econoday:
Home sales aren't likely to pick up "anytime soon" is the conclusion of the Mortgage Bankers Association whose purchase index remains depressed, down 1.9 percent in the January 14 week to extend a run of weakness. Refinancing is another matter as those who already own a home seek to lock in low rates. The refinance index rose 7.7 percent in the week with the average 30-year rate at 4.77 percent vs 4.78 percent in the prior week. Housing starts will be posted today at 8:00 a.m. ET.

These indices are not to be taken seriously, but regardless they are near all-time historic lows, it is obvious that home sales are still very anemic.

Indeed, Housing Starts for December stunk up the joint again – ugly, as starts fell to a one-year low (not unexpected given the season). Starts totaled just 529,000, this figure is roughly one-third of 2006 values. This compares to 555,000 in November, and a consensus of 550k, another miss:
Housing may be gaining forward momentum but adverse weather appears to have delayed groundbreaking. For the latest month, starts declined while permits strengthened. Housing starts in December slipped back 4.3 percent, following a 3.8 percent rebound in November. The December annualized pace of 0.529 million units fell short of the median forecast for 0.550 million units and is down 8.2 percent on a year-ago basis. The reversal in December was led by a 9.0 percent drop in single-family starts, following a 5.8 percent gain the month before. The multifamily component rebounded 17.9 percent after declining 5.0 percent in November.

By region, the December boost in starts was led by a 45.8 percent increase for the West. Declines were seen in the Midwest, down 38.4; the Northeast, down 24.7; and South, down 2.2 percent. The sharp weakness in the Midwest and Northeast indicates that snow storms played a role in damping starts.

Housing permits, in contrast, made a 16.7 percent comeback in December after declining 1.4 percent in November. Overall permits posted at an annualized rate of 0.635 million units and are down 6.8 percent on a year-ago basis. The latest boost was led by the multifamily component which was up a sharp 53.5 percent while single-family permits improved 5.5 percent.

The gain in permits may be a significant positive as it in part reflects optimism of homebuilders. December starts were relatively weak and this likely was due to atypically adverse weather for the month. Permits are much less affected by weather as homebuilders simply fill out paperwork indoors while starts depend on whether bulldozers and workers have good weather to operate. However, the Commerce Department noted that building code changes took effect on January 1 in California, Pennsylvania and New York. In turn, some of the multifamily strength likely is due to construction companies getting approval before the tighter regulations.

Today's report should be seen as a positive despite starts falling short of expectations. The big issue going forward is whether homebuilder optimism is confirmed by gains in home sales. If sales stay flat, starts will ease. But meanwhile, homebuilders have reason to be cautious and the boost in permits should be seen in that context. Optimism is up but more toward multifamily than single-family.

Note that the multi-family housing segment has been picking up lately. This is because the big players can get funding to build cheap housing for the poorer masses. Here’s an article from Bloomberg describing how the big home builders, who have access to capital markets, are the ones who have survived taking out all the small players. Thus we are left with cookie-cutter homes built quickly and on the cheap:
Biggest Builders to Gain Market Share as Demand Rises

Jan. 19 (Bloomberg) -- The biggest U.S. homebuilders are poised to benefit from a fledgling rebound in demand for new houses this year, with competitors having gone out of business during the recession and sales likely to climb from record lows.

D.R. Horton Inc., Lennar Corp. and Toll Brothers Inc. are among companies planning to boost their community counts by at least 10 percent this year after writing down property values, buying land at discounted prices and obtaining financing unavailable to smaller, closely held builders.

“It’s a definite bull tenet for the big builders,” said Ivy Zelman, chief executive officer of Cleveland-based advisory firm Zelman & Associates, who rated all homebuilders “sell” in December 2006 and now has “buy” on five of the 13 she covers. “That’s one of the reasons we’re recommending investors be long a handful of homebuilding stocks.”

The National Association of Home Builders expects new single-family home sales to rise to 405,000 this year, while Moody’s Analytics Inc. projects an increase to 540,000. The annual pace of sales averaged 319,640 for the 11 months through November, down 15 percent from a year earlier, according to Commerce Department data.

While new home inventory may be low, don’t believe for a second that there’s a new building boom on the horizon, shadow inventory of existing homes is extremely high and you can buy nice homes for far less than you can build. With material inflation, the gap between the cost to buy used versus to build can only grow, and land prices have already corrected sharply in most areas.

The fact that Wall Street is funneling money into home builders now is just more proof of the distortions they create. It’s sad to see our economy grind through consolidation to the point that a few large companies can dominate an industry. Those who have access to the easy money survive while those who don’t fail. Again, very important WHO creates that money. Oh yeah, welcome to WalMart…

Income at Goldman and WFC fell largely due to lower profits on trading. Gee, are they running out of suckers? I’ve always questioned how long the game continues after the top 5 banks own nearly all the equity. How do they make money trading at that point, trading to one another? Once the government has POMOed all their stinky debt off their hands, then what? Who can they sell their overpriced crap to? What happens when that price finally corrects? How high will food and oil prices rise when the next bailout comes? And finally, when will the people of America finally get smart and throw the bankers out on their asses?

News that Ireland is printing their own Euros without resistance from the ECB has many observers in a state of shock. Are other countries going to be permitted to do so? Definitely monetization occurring all over the place, we are seeing global food and energy inflation while at the same time the real economy continues to suffer. I think those “other events” are going to come at an ever accelerating pace now, there’s so much news I can hardly keep up.

The market action yesterday produced yet another small movement in the McClellan Oscillator, thus we can expect a large directional move today or tomorrow.

The VIX rose against higher prices yesterday, yet another divergence and it also closed back inside the range of its Bollinger bands, thus producing another market sell signal. The past two signals have been run over by POMO hot money and have thus failed, but the two prior to that did produce larger corrections that followed.

The wave count appears to be complete at this time, and the rising wedges also appear to be complete. This completion, or near completion, of what is most likely a wave 5 means that a higher order correction should follow. Obviously the technicals must fight against hot money, and thus we are likely to see that hot money avoid obviously poor buying technicals and flood to where the momentum is greatest, namely food commodities – and boy are we seeing all foodstuff spike today – sad, and shameful. I hope you guys are ready, this is a mess… the bankers are running over the people of the globe as if they have blinders on. They are blinded by their own greed…