Wednesday, March 30, 2011

Morning Update/ Market Thread 3/30 – Liquifaction Ain’t no Satisfaction Edition…

Good Morning,

Despite the worst nuclear accident in history occurring in Japan, the Nikkei Index rose 2.6% overnight. The news there is going from horrible to horrific as we learn more about the details of the condition of the nuclear plants at Fukushima. Intervention in the markets by adding liquidity is masking the reality of the situation. It’s the exact same phenomena that is occurring in the U.S. markets – again yesterday we have horrid economic data in terms of home prices (recoveries never occur without the housing market recovering too) and falling Consumer Confidence, yet the reality of the situation is papered over… resulting in dramatically rising prices… which leads to LOWER Consumer Confidence as real people have LESS disposable money.

Yet on the release of the bad data yesterday our stock market began a most unnatural climb straight up and is still going all through the evening hours to gap higher this morning. Is it real? No, it’s not real, it’s liquidity to the max… liquidity that is finding its way into all the wrong places while not making it into the pockets of the Citizens who now have been denigrated in importance to “Consumer.” This vernacular is now mainstream, just listen to your own President refer to you in that manner.

When liquidity froze up in 2008, it occurred because the banks were insolvent when marking their assets to reality. When allowed to mark them to fantasy, then everyone could pretend solvency existed again. Those trillions sent into the banks? That was nothing but robbery – but that “liquidity” is still finding its way into the price of most things “Consumers” need. This is the exact opposite of what needed to occur to produce a REAL recovery. The “Consumer” is still saturated with debt, primarily from buying homes, cars, education, and healthcare that are too expensive because the central bankers made them that way to begin with through the application of their never ending impossible math “growth” mantra.

Should even a portion of that money have gone to pay down the debt to remove the debt saturated condition, then we would be having a far different, way more positive discussion today. That didn’t happen, and is not likely to happen due to WHO it is that produces and controls the money. The private banks cannot look past their own self-interests (bonus maximization) to see that in the end even they would have been better off if they used that money to liquefy from the bottom up, instead of from the top where it just sits at the top spinning prices to the moon.

A rising stock market will only “feel good” as a marketing tool for a short time – and that time is just about up. If it continues to rise unabated, then commodity prices will rise with it, and the majority of people will simply wind up with less and less, while the minority of people wind up with more and more. That moves our nation higher and higher on the despot scale – and there is a point on that scale at which the people will rise up and remove those who have unjustly profited on the backs of the majority.

Liquifaction Ain’t no Satisfaction.

Oh yeah, and the banks are still insolvent, our nation is still insolvent, and regardless of how much money is thrown into the markets, the game of private banks creating never ending bigger numbers is almost over.

The conflicted, ridiculous, hideous, pathetic, and hypocritical Mortgage Banker’s Association (yeah, I like those reprehensible bankers that much) reported that the Purchase Index fell 1.7% in the past week with the Refinance Index falling 10.1%... just as the wave of expensive usurious Jumbo Option-ARM loans begin to reset in earnest (promoted, of course, by the MBA weasels):
The Mortgage Bankers Association reports a 1.7 percent decline in purchase application volume in the March 25 week, ending what was otherwise a solid month compared to February. The month-to-month rise in purchase applications together with strength in Monday's pending home sales report and an easy comparison with very weak existing home sales for February point to strength for the March existing home sales report. The rise in rates during the week, up 12 basis points for the average 30-year mortgage to 4.92 percent, pulled down refinance applications by 10.1 percent.

As the MBA’s ship sinks, the banks throw more and more “liquidity” into the boat. They aren’t even smart enough to see that they are drowning not only the consumers, but also themselves in the end.

The Challenger Job-Cut report showed fewer mass layoff announcements for the month of March, falling from 50,702 to 41,528:
Challenger's layoff count fell to 41,528 in March vs 50,702 in February and 67,611 in March last year. Aerospace/defense, retail, and autos all saw significant month-to-month declines in layoff announcements, while telecommunications and media both saw increases. Quarterly layoff announcements come to 130,749 for the lowest first-quarter total since 1995.

This report together with the easing underway in jobless claims confirm that businesses are no longer cutting their workforces. But are they building them up? ADP's payroll estimate at 8:15 ET today will offer clues for March.

Baloney to Econoday once again. The mass layoff phase of the collapse has already largely occurred, it can’t occur forever. The ADP report is about as accurate as animal sacrifices to forecast the weather.

According to ADP, Private Payrolls rose less in the month of March than they did in February, rising by 201,000 versus 217,000 respectively. Our economy is absolutely not creating any jobs, it is STILL losing jobs especially relative to our population growth. We have shed 7.5 million jobs since the peak in 2007.

The Consensus for Friday’s Employment Report is that we added 200,000 nonfarm payroll jobs in March, up from 192k in February. Looking at the fantastical “Birth/ Death Model,” March is a month with a middle-of-the-road addition to payrolls from this calculation – but the trend is that the additions are getting larger year over year (nonsensical). So, we’re likely to be dazzled with bull, while the reality is that real job growth has died on the debt saturated, drowning in liquidity vine:

I want to keep talking about the situation in Japan because I believe that what’s happening there is critical to humanity. TEPCO has been absolutely incompetent in their handling of the disaster, a disaster that was largely of their own making. The CEO cannot handle the pressure of the circumstances and has been hospitalized while the Chairman has taken over. Bad information and rumors have been the norm due to the lack of meaningful real information. But the damage has been obvious to me, and radiation in huge amounts doesn’t just grow on trees, so the conclusion in my mind has always been that the reactors had been breached, that a melt-down was in fact in progress, and that there is simply no way that humans can perform the repair work necessary to stop criticality from continuing. If you can’t stand that opinion coming from me, here’s someone with some unbiased credibility on the subject:

I’m sorry, but it’s already too late – the area surrounding the reactor is already contaminated and yet the contamination continues with no meaningful effort to contain it still. The result is that the area surrounding the plants is already a wasteland and will be uninhabitable for decades, maybe even centuries.

And what we are learning about how nuclear waste is handled here in the U.S. is simply frightening. Spent fuel is simply piled high into reactor cooling pools that now hold up to seven times their design capacity. The potential fallout from these pools is a far greater threat than even a nuclear bomb should the worse occur. Yes, that should scare us, and we should absolutely use this event to reevaluate what it is we’re doing, and what we’re not doing. My real fear is that we will fail to take action and that the politicians will allow the special interests to overrule common sense.

The markets? They are BROKEN. They are not real. They are to the point where they are inflicting pain instead of performing their natural functions. This will all be undone in time, but for now the liquidity is still flowing like a flooded river Nile. I note that the time since the last Hindenburg Omen has now expired, and that the McClellan Oscillator is positive once again. Bravo, great job, I hope everyone enjoys the ride – it’s already wild.