Tuesday, April 26, 2011

Morning Update/ Market Thread 4/26 - Broke Edition...

Good Morning,

Equity futures are higher, again on the back of a broken dollar which is sinking once again. Bonds are rising which does not back the rise in equities, oil is higher, and most food commodities are slightly lower. Gold is slightly lower, but regaining its footing after being much lower overnight, and silver fell sharply off new highs yesterday when margin requirements were hiked in an attempt to manipulate the price down. This did produce a top-looking candlestick, and the price is lower this morning, however I would be very suspicious of manipulated tops as my experience is that they don’t last. The $50 silver barrier was obviously too hot for the manipulators to stand, but it is they who broke the markets in the first place, once you break confidence it cannot be undone.

The FOMC meeting begins today, and we’ll see both “Consumer” Confidence and State Street Confidence numbers at 10 Eastern. This will be interesting as one confidence number has been sinking while the other has been soaring. Guess which is which? One is benefiting from money printing while the other is taking it in the shorts. Tune into the daily thread to see how this one turns out.

This morning Case-Shiller reported home Prices for February. Month to month, home prices dropped by 1.1%, this is more than January’s .9% fall which was subsequently revised to a 1.0% decline. Year over Year, prices fell 2.6%, this is an acceleration of price decline from 2.0%, and is worse than the 2.2% drop expected. Here’s Econospin blaming the weather as if bad weather never happens in February:

S&P Case Shiller data are mixed in what is probably a good sign for home prices which have been in a long and damaging slide. Seasonally adjusted data for the composite 10 index show a 0.2 percent decline for February, less steep than the 0.3 percent and 0.4 percent declines of the two prior months. These are three-month moving averages which indicates that February showed little change. Year-on-year contraction, however, is deepening, to minus 2.6 percent vs. minus 2.2 percent in January and minus 1.4 percent in December. Unadjusted data, which is widely looked at in this report, show a 1.1 percent monthly slide that reflects weather issues.

And for those who can handle less spin, here’s the entire report including a couple of nice charts worth taking a look at – Can you say “double dip?” I thought so, let’s face it, the housing market is broken:

Case Shiller February

With earnings season in full swing, “profits” appear on the surface to be peachy. However, looking under the hood a little the falsehoods of fraud and money printing can be seen if you’re willing to look. For example, the XLF has been lagging far behind the rest of the market despite record “profits” for Wall Street banks. Here’s a chart of the XLF, why is it lagging so badly?

Well, here’s a clue:

Biggest Banks Beating Estimates Can’t Hide 13% Drop in Revenue

April 26 (Bloomberg) -- The biggest percentage drop in quarterly revenue in three years, driven by lower lending and reduced fees, is damping investor appetite for shares of the six largest U.S. banks.

Net revenue at the six lenders -- Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley -- fell 13.3 percent in the first quarter from a year earlier, according to data compiled by Bloomberg. Pretax pre-provision profits, which exclude taxes, loan-loss provisions and one-time items and are considered a better gauge of profitability than earnings, slid 40.2 percent.

While five of the banks beat analysts’ estimates, and JPMorgan and Wells Fargo reported record quarterly earnings, anemic revenue and a steady drop in pre-provision profits have kept investors at bay. Since JPMorgan reported earnings on April 13 with a 67 percent rise in net income to $5.6 billion, the KBW Bank Index of the 24 largest U.S. banks has fallen 3.5 percent as the Standard & Poor’s 500 Index climbed 1.6 percent.

“You’re seeing people backing off of exposure to this space because of the lack of loan growth and poor revenue growth,” said Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and an analyst for FBR Capital Markets in Arlington, Virginia. “It’s not a sell-off -- it’s more of a slow drift down. These stocks are going to trade very weak” until their loan books and revenue start to grow.

The bottom line is that the banks are NOT making money the old fashioned way – via prudent lending. The large banks have morphed into something completely unrecognizable… they are now behemoth corporations that control the production of money, they control and manipulate all the markets, and they speculate in the same markets that they own and control. Oh, and while they are doing that, they are busy marking their debt and derivatives to a fantasy model of their own creation! Nice business model. The truth, of course, is that the large banks are insolvent, as in BROKE when their REAL assets are compared to their liabilities. These banks literally own the “FED” and they have totally captured politics and economic policy.

It’s quite the bizarre situation when you pause to really think about it.

Yesterday’s market volume was the lowest of the year. It also produced a VIX market Sell Signal which occurs when the VIX closes back above the lower Bollinger band after closing a daily candle below it:

That sell signal has been overrun recently by money printing, so I wouldn’t bet the farm on it, especially with inverted and bullish Head & Shoulder patterns in play. Still, this signal if it is prophesying a market decline, usually leads the market by a few days – so patience is required even when the market isn’t as highly manipulated as it is now.

Here's the latest update from Arnie Gunderson calling for a pause and rethinking of our nuclear power programs - he's spot on, only I think the shift needs to be even more dramatic:

Fairewinds Calls for the Nuclear Regulatory Commission to Delay Licensing Until Fukushima Lessons Are Evaluated

From my perspective the regulators are broken, the housing market is broken, the banks are broken, the United States is broke, the rest of the developed world is broke, and what we call “markets” are completely and totally broken. Oh, and don’t forget Broke Back Bucky, he’s broken too…