Wednesday, February 16, 2011

Morning Update/ Market Thread 2/16

Good Morning,

Stock futures are higher, keep in mind Monday’s small movement of the McClellan Oscillator. The trend here seems to be that we have a small reading, a day of consolidation and then ramp. Despite that, the dollar is spiking higher, bonds lower, oil & gold slightly higher, while food commodities are in correction mode with rice gapping down a significant amount. Funny this is occurring just as the “World Bank” issues a report stating that rising food prices have sent 44 million into extreme poverty. Naturally no mention of their role in producing hot money, it’s all about population growth and the weather. Not to mention that figure is extremely low, I’m thinking the number of people sent into extreme hardship is probably well above a billion.

Equities immediately began ramping after yesterday’s close as the HFT computers and hot money combined to send prices higher in a no volume environment. Yet I read this morning in the mainstream how economic data is the cause – yeah, if you say so. Here’s yesterday’s late day ticker:

This is called Market capture. They ARE the market. A fact of which I’m sure the narcissists like Jamie Dimon are proud of. Yet to me this is grotesque that we have allowed this firm to become so dominate, as they use their capital and super computers to rob the real people of the world. The markets are NOT REAL. They are 100% controlled and contrived by just a few firms, JPM is the largest by far.

And now since the trillions in bailout hot money began flooding the banks and markets in March of 2009, the S&P 500 index has doubled. That’s a 50% gain for two years in a row, and yet it’s still 16% below its peak in 2007, and is still below where the market was one decade ago:

Extreme volatility for sure, the correlation between Mark-to-Market accounting rules and the supply of POMO are the most significant correlations in the marketplace today. Should either of those change, we would absolutely see the volatility on the downside again. And this market capture has made the markets extremely vulnerable to JPMorgan’s whim. As they have grown bigger and more dominant, should any lawmaker or event threaten them, they are now carrying a bigger market stick. Sick how the people of the planet let them create money from nothing, then allowed them to create derivatives from nothing, and now we allow them to control our markets – not to mention control of our politics.

Meanwhile, the other nice bankers at the MBA report that the mess they’ve made is getting worse quickly as interest rates rise. The Purchase Applications Index fell another 5.9% in the last week, with refinance activity supposedly falling 11.9%. This pushed their overall index down 9.5%. Here’s Econoday:
Rising rates, up nearly one full percentage point from October, are drying up refinancing demand and are cutting into already weak demand for home purchases. The refinancing index fell 11.4 percent in the February 11 week to the lowest level in more than 2-1/2 years. The purchase index fell 5.9 percent. The average rate for 30-year mortgages was little changed at 5.12 percent.

What’s there to say about that? A one percent move in interest rates translates into 11% less house that people can afford over the course of a 30 year loan.

Housing Starts in January supposedly rose, but are still at depression era levels, coming in at just 596,000 units. This is up from December’s 529k, and is better than expected, however, permits fell which spells a weaker future. Note that nearly all of January’s advance was due to multi-family housing (apartments for the former middle-class):
Housing construction was mixed in January and remained at a very soft level. Starts advanced while permits fell back. Housing starts in January jumped 14.6 percent after slipping 5.1 percent the month before. The January annualized pace of 0.596 million units beat analysts' forecast for 0.540 million units and is down 2.6 percent on a year-ago basis. January's pace is the highest since 0.601 million seen in September 2010. The latest gain was led by a monthly 77.7 percent surge in multifamily starts, following a 10.8 percent rise the month before. The single-family component slipped 1.0 percent after declining 8.4 percent in December.

By region, gains in starts were seen in the Northeast, up 41.8 percent; the Midwest, up 36.4 percent; and South, up 15.8 percent. For the West, starts declined 9.7 percent.

Housing permits, in contrast, fell 10.4 in January after improving 15.3 percent in December. Overall permits came in at an annualized rate of 0.562 million units and are down 10.7 percent on a year-ago basis. The latest decrease was led by the multifamily component which was down a monthly 23.8 percent while single-family permits declined 4.8 percent.

Data were mixed in January with starts up and permits down. But there are two key issues. First, strength (albeit soft strength) is in the multifamily component. Homebuilders are still very cautious about the single-family sector with inventory overhang still high. Second, seasonal factors are large during winter months and it is difficult to really sort out the marginal changes. The bottom line is that housing is still anemic although some apparently are a little optimistic about the multifamily sector.

Inventory is still far too high, and the upper-end homes are on the verge of a dramatic rise in the number of resetting Option-ARM loans which will place great pressure on home prices just as interest rates are rising.

Industrial Production unexpectedly declined in January by .1% versus the prior .8% rise and .5% consensus. Capacity Utilization, at 76.1%, rose by one-tenth, but is also less than consensus and is at a level only seen during an economic depression. This utilization rate is after more than two years of severe deleveraging and more than two decades of sending our production capacity overseas. This utilization statistic is one of the few not measured in dollars and is proof of a very sick economy as healthy rates are well above 80%. Here’s Econoday who will not state it quite so bluntly:
Key underlying detail on major components reversed position in January from December. This time a decline in utilities output masked a moderately healthy showing in the manufacturing component. Industrial production dipped 0.1 percent, following a 1.2 percent jump in December. The latest number fell short of analysts' projection for a 0.5 percent gain. January's decrease was led by a 1.6 percent fall in utilities output, following a 4.1 percent spike in December. Also, mining tugged down on industrial production, declining 0.7 percent in the latest month. In contrast, manufacturing output advanced 0.3 percent after a 0.9 percent jump in December.

Within manufacturing, output of motor vehicles and parts was up a sizeable 3.2 percent, following a 0.2 percent gain in December. Excluding autos, manufacturing edged up 0.1 percent in January after a 0.9 percent jump in December. Essentially, manufacturing is continuing a healthy uptrend with some months stronger than others.

On a year-on-year basis, overall industrial production slowed to 5.2 percent from 6.3 percent in December.

Overall capacity utilization slipped in January on the decline in utilities and mining, easing to 76.1 percent in January from 76.2 percent the month before. The January rate came in lower than the median forecast for 76.3 percent.

Volatility in the utilities component has been making the headline production number unreliable as a measure of underlying strength. In contrast, manufacturing continues to post healthy gains.

Nice spin blaming utility volatility – this report shows that we continue to produce little real and with utilization that low there is excess capacity that will eventually be dismantled because it’s not being put to use. As an example of that, Boeing recently sold off several of its older buildings in the Seattle area. As those buildings are taken out of production, capacity utilization rises, even if overall production declines.

The cooked PPI numbers came in at a completely unrealistically low level yet still hotter than expected. Overall PPI supposedly rose .8% in January, this is down from 1.1% in December, and on consensus. When we remove the repressive food and energy components, however, the “Core” rate accelerated from .2% to .5%. While they don’t want to annualize these rates, that translates to an overall 9.6% rate of Producer Price inflation and 6% in the core reading. Zowie, that’s hot. Certainly not the 2% rate the “Fed” advertises as their guarantee to kill our currency, no, no they are hell bent on doing that sooner than later. And remember, this is the trumped-up measurement...
Inflation is heating up at the producer level for both headline and core numbers. The overall PPI inflation rate posted at a still strong 0.8 percent increase, following December's revised 0.9 percent boost and 0.7 percent jump in November. The January gain matched the median forecast for a 0.8 percent rise. At the core level, the PPI jumped 0.5 percent, following a 0.2 percent increase the month before. The market expectation was for a 0.2 percent rise.

By components, food prices increased 0.3 percent, after a 0.8 percent boost in December. The energy component remained red hot, jumping 1.8 percent after surging 2.8 percent in December. The usual suspects were not behind the surge in the core rate. Nearly forty percent of the January advance can be traced to the index for pharmaceutical preparations, which moved up 1.4 percent. Higher prices for plastic products also contributed to the rise in the finished core index. The usual suspects were relatively tame. Passenger car prices dipped 0.1 percent while light trucks rose a moderate 0.2 percent. And tobacco edged up only 0.1 percent.

For the overall PPI, the year-on-year rate slipped to 3.7 percent from 4.1 percent in December (seasonally adjusted). The core rate edged up to 1.6 percent from 1.4 the previous month. On a not seasonally adjusted basis for January, the year-ago the headline PPI was up 3.6 percent while the core was up 1.6 percent.

Despite Fed comments to the contrary, there are signs of building inflation pressures.

Riiight… food only rose .3% in the month. Note how their measurement is completely disconnected from all the other food inflation measurements that we’ve been following over the past couple of months. There is no doubt that the trend is up and that price inflation is accelerating.

Continuing to pour hot money into the markets will absolutely cause commodities to rise in price. Those furthest from the production of money suffer, while those closest to it have nearly perfect trading years. Congratulations JPMorgan.