Tuesday, February 22, 2011

Morning Update/ Market Thread 2/22

Good Morning,

Equity futures are down significantly this morning. The dollar is only slightly higher after being up considerably over the weekend. It appears that bond futures did a contract roll-over this weekend causing them to appear as if they fell, but they are actually up slightly. That was a strange roll-over with a large price difference from one contract to the next. Oil, of course, did a moonshot on the Libya situation, rising more than $7 a barrel yesterday and in holding onto those gains. That puts NYMEX crude just under $100 a barrel, and Brent significantly higher. Food commodities are mostly lower, however corn rose significantly higher in concert with oil, but has since fallen back – such is the new connectedness with ridiculous policies like subsidizing worse than worthless ethanol.

Of course the civil war that has broken out in Libya is just another product of central banker mis-policy that starves those around the world who are living on the margins. But with the impossible math so firmly in control, it is finally becoming so blatantly obvious that no one is even disputing just how bad the math is any longer. The bad math is pressuring food prices, it’s pressuring states, like Wisconsin, to get tough with their budgets.

While they are finally getting tough, they are getting tough in a misdirected way. Yes, they need to shrink government so that they live within their means, but the math is so impossible that doing so is impossible at this juncture without creating civil unrest. The right solution is to clear out the central bankers and then to discharge the debt via some sort of reorganization that causes investors who took mindless risk to eat their losses. That is the way of the world.

And debt investors are going to eat losses soon, one way or the other. As it is now completely obvious, so obvious that even a blind European Central Banker can see it, that central banking money pumping is responsible for creating unconscionable inflation, that, choke, they are even talking – just talk mind you – about raising interest rates:
Feb. 22 (Bloomberg) -- European Central Bank council member Yves Mersch said officials may toughen their language on inflation next week, indicating a readiness to raise interest rates in coming months.

“I would not be surprised at most colleagues concluding that we have upside risks to price stability,” Mersch said in an interview in Luxembourg yesterday. With the economy strengthening and inflation in breach of the ECB’s 2 percent limit, policy makers will “inevitably” have to “rebalance our monetary policy stance,” Mersch said, without giving a timeframe.

Ahhhhh! The horror of it all! Rates higher than zero? Could it be? Nawww, they can’t. At least they can’t without skyrocketing the interest that’s spent on the national debt and all the debt saturated citizens of the planet. Home sales? Home prices? Forgetaboutit.

Speaking of home prices, Case-Shiller 10-city index fell .9% in December, this price decline is up from .8% reported in November. For the fourth quarter, the National Index of Home Prices was down 3.9% from the same quarter a year prior. Here’s Econoday:
The rate of home-price contraction held steady in December, according to Case-Shiller data which shows a 0.4 percent month-on-month adjusted decline for the composite-10 index which is unchanged from November. The rate of year-on-year decline, however, deepened significantly to 1.2 percent from November's year-on-year decline of 0.5 percent (revised from minus 0.4 percent). Declines for the unadjusted data show deepening rates consistent with heavier weather in December vs November. The unadjusted month-to-month decline is 0.9 percent vs November's decline of 0.8 percent. Year-on-year, the unadjusted contraction for the composite-10 deepened to 1.2 percent vs November's 0.5 percent while the composite-20 contraction deepened to 2.4 percent vs November's 1.6 percent.

On the positive side, city by city data shows the isolated appearance of strength though declines continue for most. Quarter-to-quarter adjusted data show easing in year-on-year contraction, to 2.1 percent in the fourth quarter vs the third quarter's contraction of 3.3 percent.

Heavy supply including price competition from foreclosures continues to depress the housing sector. But the economy as a whole, unlike the prior recovery, is moving forward without the housing sector. Price data for January will be posted with tomorrow's existing home sales report and Thursday's new home sales report.

Once again Econospin tries to find positive aspects to the data, but the actual report has many negatives they fail to mention. There is no doubt that a reacceleration of home prices in the downward direction has begun, and we are just now entering the ramp period for Option-Arm resets, just as interest rates are rising.

“Consumer” Confidence is released at 10 Eastern.