Tuesday, May 10, 2011

Morning Update/ Market Thread 5/10 - Sweet Little Lies Edition…

Good Morning,

Equity futures are higher this morning prior to the open. The dollar is higher and bonds are close to even, gold and silver are higher, and most food commodities are higher as well, with the price of wheat soaring.

Last night they raised the margin requirement for oil, and the result so far is a decline of about a buck and a half with the price still well above the $101 level. While this is clearly manipulation of that market, my take is that margin and the use of derivatives was way out of control and it is way past time to reel in the speculation in commodities. The use of margin and derivatives is an act that actually creates a temporary form of money – there are very few legitimate reasons to allow this, and when it comes to commodities I think the rule should be that you must be ready and prepared to actually take delivery of the commodity or else you have no business “investing” in it. Bringing in outside players is not price discovery, it is speculation. The flip side of being willing to take delivery is that the exchanges should be required to ensure that there is physical commodity that’s available to be delivered – again, if not, then the person at that end of the contract has no business playing either.

The Small Business Optimism Index fell yet again with only one segment of the index rising, but many, including employment, falling. Here is Econohugebusinessshills:
The nation's economic recovery is not centered in small business where, in contrast to big business, growth is no better than marginal, according to the National Federation of Independent Business. NFIB's April index of small business optimism slipped for a second straight month, down seven tenths to 91.2 in what the report says reflects the "anemic" pace of economic recovery. The report notes the sample's hiring plans, which are limited, are not consistent with the solid payroll gains of the April employment report. This mismatch, according to the NFIB, suggests that the bulk of new hiring is happening in larger firms.

What economic recovery? They must mean money printing recovery?

The NFIB writes one of the very few 'with it' reports, the commentary in this month’s release is very good and worth a read. Again, only one of the areas surveyed improved, and most worsened. The index has fallen every month this year so far:

Small Business Economic Trends May

Import and Export Prices in April came in still white hot although not quite as hot as March… IMPORT prices rose 1.1% on the month, but 9.6% on the year, versus 1.5% and 9.5% respectively. EXPORT prices rose 2.2% on the month (26.4% annualized), but 11.1% on the year, versus 2.7% and 9.7% respectively.

Note that while the month to month increase while still HUGE is down somewhat from the month prior, but the year over year figures are accelerating and in what I think is very dangerous territory – as in famine, wars, etc., that kind of dangerous. But not to worry, we can spin giant numbers like that just as easily as we manufacture money:
Import and export price data show inflationary pressures moving into what are still however subdued consumer prices. Import prices for consumer goods rose 0.4 percent in April extending what is an upward monthly trend though the year-on-year rate, at plus 0.6 percent, has just begun to rise into positive ground. Export prices for consumer goods, also up 0.4 percent in the month, have been showing more tangible pressure with the year-on-year rate at plus 3.2 percent.

The rise in prices for consumer goods reflect, to a degree, pass through of high energy prices. Import prices for petroleum rose another 7.2 percent in April for a year-on-year rate of plus 37 percent. High food prices are also a factor, up 0.6 percent on the export side for agricultural products for a year-on-year rate of plus 35 percent.

Headline numbers show a 2.2 percent rise for import prices, a severe increase that pushes the year-on-year rate into the double digits at plus 11.1 percent. Export prices rose a heavy 1.1 percent in the month for a year-on-year rate that is nearly in the double digits at plus 9.6 percent. Today's data will likely raise talk of non-core pressure in this week's producer and consumer price reports.

Talk about economic obfuscation, it’s a wonder this field has any credence whatsoever.