Friday, June 10, 2011

Morning Update/ Market Thread 6/10 - Where’s the next hit Edition…

Good Morning,

Equities are substantially lower this morning, the dollar is stronger, bonds are higher, oil is falling but still above $100 a barrel, gold & silver are tumbling, and most food commodities are lower.

While I’m on the subject of the food commodities, I want to point out that corn broke up and out of a bullish inverse Head & Shoulders pattern yesterday:

While corn is breaking out higher, the other food commodities look to me to be building an upright H&S pattern that may produce a bearish outcome. Corn is obviously benefiting from its new roll as a government subsidized worse than worthless fuel, and has for the moment garnered the attention of the dwindling hot money.

Speaking of hot money, the supposed last POMO schedule covering the last 14 days of the month will be released this afternoon. Still no word on more heroin for the addict, so the addict is wilting at just the thought of stopping its drug injections.

Speaking of drug heads, NATO leadership came right out yesterday and said that Gadhafi is a legitimate target. This is directly against the Geneva Convention and centuries of precedence regarding the protections of heads of states. It indicates to me the further progression of the breakdown of the rule of law, and also the power that the printing press contains to create a world dominating power that feels invincible against in kind retaliation. Perhaps we’re invincible, but then again, maybe we’re not…

Speaking of the opposite of invincible, I would say that is a spot on description of both our economy and our markets. Bernanke and the private “Fed” are wearing no clothes and everyone knows it. Shockingly 45% of Americans in a recent poll said they believe the nation is on the verge of a Great Depression. I think they’re all nuts! Don’t they know that we’ve been in a Great Depression for the best part of a decade already?

Import and Export prices are sky high, but may be about to turn the corner as the drug addict’s crack is about to run out – at least until the next stick-up so that they can get more. Both Import and Export prices rose .2% in May, this is down considerably from the prior month advances, but is largely due to the price of oil plateauing. Still, year over year export prices are accelerating, now up 12.5% versus April’s 11.1% - Gee, Econohay doesn’t even mention that one:
Inflation pressure from imports is easing, reflecting the dip back from the April peak in oil prices. Import prices rose only 0.2 percent in May, by far the smallest increase of the last nine months. Prices for petroleum imports fell 0.4 percent for the first decrease also in nine months. Pressure, though very modest, does appear for finished goods with import prices of consumer goods rising 0.3 percent, which extends a seven-month trend, and import prices of capital goods rising 0.2 percent.

The export side also shows a 0.2 percent headline rise which is by far the smallest increase in 10 months. For the first time in 10 months, prices of agricultural exports fell, down 2.0 percent.

Commodity-based inflation pressures, whether prices of oil-related imports or agricultural-related exports, may have already peaked which is good news for policy makers who have to keep their eye on inflation as they try to stimulate demand. Today's report points to little trouble for next week's producer and consumer price reports.

Well then, I guess that with only 12.5% export inflation we’re in desperate need of another fix.

Meanwhile, the Chinese kettle is calling the American pot black when the Chinese Rating Agency says the following:
"In our opinion, the United States has already been defaulting," Guan Jianzhong, president of Dagong Global Credit Rating Co. Ltd., the only Chinese agency that gives sovereign ratings, was quoted by the Global Times saying.
Washington had already defaulted on its loans by allowing the dollar to weaken against other currencies -- eroding the wealth of creditors including China, Guan said.

How true! And gee, they must be reading the Economic Edge as I made that exact statement, oh, about two years ago. Welcome to reality.

However, the Chinese are even worse than the Americans when it comes to money printing. They have created a massive bubble themselves and have contributed greatly to the devaluation of global fiat and the formation of damaging bubbles. To me the whole world is throwing rocks inside of their glass house facades… and it’s going to work out as well as it sounds.

Don’t look now, but the Russell 2000 small caps are forming what appears to be a H&S top. It’s sitting at the neckline now, a trip below this level will put that formation in play. Below is a one year daily chart showing this:

The other indices are not quite there yet, but remember that the small caps tend to lead both on the way up and on the way down.