Wednesday, May 25, 2011

Morning Update/ Market Thread 5/25 - It's All Mixed Up Edition...

Good Morning,

Equity futures are a little lower prior to the open after being down considerably overnight – another “gift” from our “Fed” no doubt (eye roll). The dollar is slightly higher, bonds are close to even, oil is off slightly, silver & gold are close to even, and most food commodities are slightly higher.

The morally challenged Mortgage Banker’s Association reported that Purchase Applications rose by 1.5% in the past week, and that their Refinancing Index grew by .9%. What, no double digit swings? How reasonable of them. No, I don’t believe anything that comes from them, but know that purchase applications are still hovering near all-time modern lows that are less than half of what they were. Here’s Econoneverabadday:
The volume of mortgage applications for home purchases rose 1.5 percent in the May 20 week, partially reversing the prior week's 3.2 percent decline. Purchase applications jumped 6.7 percent in the first week of May, a month that so far looks to show a gain compared with April in what would be good news for the housing sector. Applications for refinancing rose 1.5 percent reflecting favorable mortgage rates which however rose in the week, up nine basis points for 30-year loans to 4.69 percent.

If May isn’t better than April, then you know how messed up it is. Most of the housing data has been weak, New Home Sales was the exception. Remember, massive Option-ARM loans are resetting and that will pressure upper end homes.

Yesterday the Richmond “Fed” Manufacturing Index took a header in May, falling from a positive reading of 10 all the way to negative 6. That shows outright contraction according to them, not just a slowing of growth.

This morning Durable Goods Orders also took a header, falling from the prior 2.5% gain to a 3.6% loss month over month. This is the largest drop in the past six months, and the declines were widespread. Remember, orders are measured in dollars, not units, so to have a contraction of that magnitude at the same time that we’re still throwing out billions in QE every day says a ton about how powerful the underlying forces of deflation are.

More and more data points are showing contraction. Any slowing in the devaluing of our money will allow the deflationary forces to show. Those forces are always present since our economy is debt saturated, printing money simply masks them. Slow the printing, or even indicate that it may slow in the future and those deflationary forces will express themselves.

Of course it is the reaction to the debt saturation that causes greater inflation. And with daily doses of freshly printed debauched dollars, the stock market is artificially kept from seeking a realistic level. This creates bizarre phenomena like an IPO valuation of 1,000+… there is simply too much “liquidity” sloshing around in the criminal central banker hands. Of course they tell you that the problems here and in Europe are one of “liquidity,” but that is complete nonsense, the real problem is insolvency because macro incomes cannot possibly handle more debt. Income to debt is what matters, debt to GDP is a Red Herring argument designed to distract, confuse, and confound. It’s all mixed up…