Monday, February 28, 2011

Morning Update/ Market Thread 2/28

Good Morning,

Equities are shooting higher overnight as the dollar plummets down and has landed directly upon long term support. Bonds are roughly flat, oil rose to the $100 mark and has since fallen back, gold is slightly higher, and most food commodities are slightly lower.

Below is a 60 minute chart showing how the dollar plummeted down to exactly touch long term support, bounced, and then collapsed again. This is a critical juncture for the dollar. Should it break this level, then massive pressure will mount on the “Fed” and our politicians to act. Should it fall rapidly we may see a melt-up of commodities which would further pressure those on the margins:

Personal Income and Outlays were reported for January. According to Bloomberg, “Purchases increased 0.2 percent, the smallest gain since June and half the median forecast of economists surveyed… Incomes climbed more than projected, reflecting the tax-cut compromise reached by President Barack Obama and Congressional Republicans in December, and inflation remained below the Federal Reserve’s long-term forecast.”

Although spending is not accelerating as expected, according to this report, “real” wages increased a whopping 1.0% in January, and are now up 4.6% year over year. That is simply astonishing and complete, dare I say, bullshit. Just like GDP and many other statistics, they take a dollar figure and adjust it for inflation (calculated their way) to make it “real.”

This report claims that the “core” price index rose by only .1% in January, .8% year over year, which of course is complete fantasy. To say that the data is disconnecting from reality is quite the understatement. And speaking of disconnected from reality, here’s Econoday parroting the consumer centric spin:
Income growth jumped in January but spending slowed considerably. Inflation remains on two tracks with headline numbers outpacing the core. Personal income in January increased 1.0 percent, following a 0.4 percent gain the month before. The latest figure came in higher than the consensus estimate of 0.4 percent. Wages & salaries, however, grew a moderate 0.3 percent after gaining at the same pace in December.

As in December, consumer spending for the latest month was led by auto sales and higher gasoline prices. Personal consumption expenditures increased a modest 0.2 percent, following a 0.5 percent advance in December.

For January, strength was led by nondurables, up 0.9 percent (including gasoline), with durables advancing 0.4 percent. Services spending was flat for the latest month. Notably, inflation eroded the gain in overall spending as chained dollar purchases fell 0.1 percent in January after a 0.3 percent boost the month before.

On the inflation front, the PCE price index posted a 0.3 percent rise, matching the gain in December. The core rate was not as strong but still warmed up a bit with a 0.1 percent rise, compared to no change in December. On a year-ago basis, headline PCE prices are up 1.2 percent in January-the same rate as in December. Core inflation held steady at 0.8 percent year-on-year versus in December.

Year on year, personal income for January was up 4.6 percent, compared to 3.8 percent in December. PCEs growth improved to 4.0 percent from 3.9 percent in December.

Income is up, which is good, but spending has slowed. To date, the easing in spending growth is not worrisome given that it is coming off strong months. However, moving forward, healthier gains in wages & salaries are going to be needed to keep spending ahead of what appears to be building headline inflation.

Again, bad data leads to massive misallocations, and this report is a giant pool of disinformation.

And speaking of disinformation, the Chicago “Fed” releases the PMI Index at 9:45 Eastern this morning.

While the data is disconnected from reality our “Fed” continues to buy up debt – print money from nothing. Doing so lessens the burden placed on the member banks, and thus frees them up to leverage up. And leverage up they have, to new Mark-to-Fantasy wild extremes. Indeed, their hot money rotation has run up food and energy like there is no tomorrow, and this has set off riots and revolutions around the globe. Historic and quite the sight to see. What is most amazing is our failure as a nation to accept our role in creating the havoc, and in starving those whose incomes go substantially to obtaining food.

This violence has now spread to Oman where oil refineries are under pressure. Of course Saudi Arabia jumps forth once again and claims that they can make up for their oil production too, no problem. This is yet another outright lie and more disinformation.

In Ireland Fine Gael toppled decades of central banker controlled politicians. Enda Kenny, the newly elected Prime Minister, is already calling on the central banks to renegotiate the terms of recent central banker money from nothing never ending enslavement rob the people blind loans.

Mr. Kenny, with all due respect, this is the wrong approach. There should be no negotiating and there should simply be no loans. Tell the central bankers to pound sand, leave the Euro, and produce your own sovereign money! You will never be a free nation until you do so. No, holding elections does not make you free.

The end of month and beginning of month is a time that typically sees buying in equities that produces an upwards bias. This is more true with the daily billions being pumped into the system. But we’re at an inflection point in the markets with the dollar at long term support. Continued pumping may cause the dollar to break down further – the fallout will get even more dangerous if it does.

The math is impossible and it is now pressuring all levels of government in the U.S., and despot regimes the world over. The correlation between the money pumping and mispriced markets is clear and can be seen in the chart below comparing the size of the "Fed's" balance sheet to the S&P:

Welcome to the modern "fundamental" condition of the market. It's a fairly heavy week for economic disinformation reports, the Employment Situation comes this Friday.