Wednesday, June 15, 2011

Morning Update/ Market Thread 6/15

Good Morning,

Equity futures are down considerably this morning, nearly wiping out all of yesterday’s gains. The dollar is higher, bonds are up slightly, oil is lower, gold & silver are down slightly, and most food commodities are lower. Corn is now back below the breakout point I showed a couple days ago.

The situation in Europe is driving the Euro significantly lower. Riots over austerity measures have been occurring in Greece and while that’s going on you have criminal bankers and others like Steve Forbes over there proposing to “privatize” Greek assets (and split them up for their pleasure and control.) Of course the bankers tried to do the same thing in Iceland but fortunately the people took action and told the bankers to go pound sand. Hopefully more people will follow Iceland’s example in that regard.

I really like the way the media tried to justify the oversold bounce yesterday – like they could even hint at supposedly “good” data. What nonsense, as there was certainly no data that was good, even as trumped up as most of it is. Today’s data is also mostly negative.

Of course the corrupt and conflicted narcissists over at the Mortgage Banker’s Association managed to pull a positive number out of thin air for the previous week, reporting that mortgage applications increased by 4.5% in the past week, but get this, they also say that refinance applications increased by a whopping 16.5%! My, oh my… that is a whopper… of a fantasy or a lie – pick one. Sorry, but anyone believing that refinance applications can make that size of swing in one week is on some powerful drugs. The people at the MBA are sick and need help – for those who don’t know the history here, these are the same guys who derided Americans for walking away from their underwater mortgages at the same time that they were doing the same exact thing from their own corporate headquarters. That’s called hypocrisy, and that’s just the tip of how messed up these people are. Their data is a great example of a special interest group who tries to influence “consumers” perceptions by manipulating data to spin those perceptions. In my opinion, the mortgage bankers behavior is a great example of why special interests should be separated from government and they should not be allowed to report major industry statistics on their own activities. At any rate, here’s the joke for what it is, Econogullible reporting:
Mortgage bankers were very busy in the June 10 week as applications for both purchases and especially for refinancings jumped sharply. The purchase index rose 4.5 percent to offset a similar sized decrease in the prior week. The refinancing index added to a solid gain in the prior week with a 16.5 percent surge. Favorable terms are an important plus behind the demand with 30-year mortgages down three basis points to an average 4.51 percent. One week's data is only week's data but the June 10 week is a good start for the summer housing season. Home builders will have their say at 10:00 a.m. ET this morning with the housing market index.

Pleeeeaaaaase…. How Gullible can you be? Oh, that’s right, got to shill to keep the façade in tact.

CPI numbers came in similar to the PPI with the month to month number softening but year over year accelerating. Regular readers know that these numbers also do not reflect reality, they understate overall inflation:
Consumer price inflation softened in May on a decline in energy costs. The consumer price index in May grew at a 0.2 percent rate, down from 0.4 percent in April. The latest figure, however, came in higher than the consensus forecast for no change. Excluding food and energy, the CPI jumped 0.3 percent, following a 0.2 percent rise the month before. Analysts had forecast a 0.2 percent increase.

Turning to major components, energy came down 1.0 percent, following a string of strong gains including 2.2 percent in April. Gasoline declined 2.0 percent after jumping 3.3 percent in April. Food prices rose 0.4 percent, matching the boost in April.

Within the core, indexes for apparel, shelter, new vehicles, and recreation all contributed to the acceleration, rising more in May than in April. These increases more than offset declines in the indexes for airline fare, tobacco, and personal care. New & used vehicles rose a strong 1.0 percent but this may be a temporary effect of supply disruptions of parts from Japan and less availability of some auto models.

Year-on-year, overall CPI inflation worsened to 3.4 percent (seasonally adjusted) from 3.1 percent in April. The core rate bumped up to 1.5 percent from 1.3 percent in April on a year-ago basis. On an unadjusted year-ago basis, the headline number was up 3.6 percent in May while the core was up 1.5 percent.

Today's inflation report lowers the odds of the Fed engaging in QE3 as there clearly are some warm spots within the CPI. With energy softening a bit, food price inflation is standing out more.

The Empire State Manufacturing Index cratered again, this time going all the way to negative 7.8 in June from May’s positive 11.88 reading. This is way off of expectations with the consensus looking for positive 14:
For the first time since November, monthly business conditions in the New York manufacturing region contracted in what is an ominous, though nevertheless still isolated, indication for the national economy. The Empire State index fell nearly 20 points in the June reading to minus 7.79 in what the report describes as a "steep" decline. New orders fell nearly 21 points to minus 3.61, again a negative reading indicating month-to-month contraction compared to May. Shipments are even worse, down nearly 35 points to minus 8.02.

Other details include faster delivery times, which is an indication of weak activity, and a moderating rate of inventory accumulation which is another sign of weakness. Input costs remain extremely high while pricing power for output prices is easing. The report also shows a moderating rise in the number of employees and a contraction in the workweek.

If the sister report on Thursday from the Philadelphia Fed also turns negative, talk will definitely pick up for contraction in the national ISM manufacturing report for June. National data for May on the manufacturing sector will be posted at 9:15 a.m. ET this morning in the industrial production report.
Ummm, it was the weather! No, it was Japan. But it couldn’t possibly be debt saturated American “consumers” within their debt saturated governments, could it? Oh never mind, get out there and shop some more, your nation needs you… to be further in debt.

Industrial Production for May barely held onto positive at just .1%, again less than expected. The trend is definitely down here too, and an ominous sign is that Capacity Utilization fell to just 76.7%. That’s a depression era read, again it’s a sad statement that we are more than three years past the beginning of the collapse that began in ’07 and that companies have had that long to reduce capacity yet even as they do so utilization remains low which tells me there is still too much capacity out there. That fact alone has implications for commercial real estate and also on employment data. Here’s Econohope:
Industrial production posted a modest rise in May but was held back by a drop in utilities. Manufacturing improved moderately but was quite strong outside of autos. Overall industrial production in May edged up 0.1 percent, following no change in April (originally unchanged). The market median forecast was for a 0.2 percent gain.

However, manufacturing made a comeback, rebounding 0.4 percent in May, following a 0.5 percent fall the prior month. April auto production had been constrained by shortages of parts from Japan related to the March earthquake and tsunami and this damping effect appears to have continued into May with motor vehicle assemblies essentially flat. Excluding motor vehicles, manufacturing advanced a robust 0.6 percent after a 0.1 percent dip in April.

Utilities dropped 2.8 percent after increasing 2.4 percent the month before. Mining output expanded 0.5 percent after a 0.8 percent boost in April.

On a year-on-year basis, overall industrial production slowed to 3.4 percent from 4.7 percent in April.

Overall capacity utilization in May was unchanged at 76.7 and came in lower than the consensus estimate for 77.0 percent.

The details for the production report are quite encouraging as the headline number was weighed down by utilities and manufacturing excluding autos was very healthy. Taking into account that auto assemblies eventually will work around current parts shortages, forward momentum looks good and the national numbers for May are much more positive than the June numbers from the Empire State report.

The traditional non-NAICS numbers for industrial production may differ marginally from the NAICS basis figures.

Sorry Econohay, it is not fair to say that Capacity Utilization was unchanged. It was only unchanged when compared to the revised lower number from the previous month – you must compare oranges to oranges, that means initial report to initial report and revised number to revised number. This is a classic way that today’s media creates a positive spin on negative data. The people reporting the data have learned this too and provide the open door with higher initial readings that get quietly revised downward later. Its part of the sickness that’s infested today’s pretend economy.

Speaking of sick, our own complicit U.S. Treasury works with the “Fed” to mask the flow of funds to obscure reality… no audit, no looking at the trail of money. But we know the trail… the “Fed” prints money or issues bonds indebting Americans and then they use that money to roll-over prior existing bonds (Ponzi), but they also send money (and gold) overseas to international banks. Then the Treasury gets to come out and say that those same international banks purchased bonds from the United States! It’s simply a giant shell game to obscure the truth – the truth being that America cannot really finance our massive debts. So the Treasury and “Fed” work together to obscure reality and that’s how we wind up with a positive flow of Treasury International Capital:
The net inflow of foreign investment improved in April but is still at a very moderate $30.6 billion, far below what's needed to fund the nation's fiscal debt and trade deficit. Private foreign accounts were however big buyers of US equities in the month with a net inflow of $16.6 billion. Including official accounts, the net inflow into equities was $17.8 billion. But April was a good month for the stock market which hit a peak at month end, a peak that is now a distant memory and which points to trouble for these readings in the coming reports.

Outside of equities, official accounts, which include foreign central banks, were the biggest buyers in the month with net inflow into Treasuries of $24.4 billion vs a net outflow from private accounts of $1.0 billion. There was a net outflow from both official and private accounts for corporate bonds. When including short-term securities, total inflow in the month nearly doubled to $127.1 billion which is a welcome positive. But a negative in the report is a high level of outflow from the US into foreign securities, at $14.2 billion in the month.

A look at Treasury holdings by nations shows a $7.6 billion rise in mainland China, which is also a positive, to $1.15 trillion and a small decline in Japan to $906.9 billion. UK-based accounts, which are the third largest holders of US Treasuries, shows a $7.8 billion increase to $333.0 billion.

Here’s the entire TIC report:

TIC Press Release APRIL

By the way, recent articles suggest that the Chinese have divested themselves of 95% of the U.S. bonds they previously held. Of course the buyer of last resort was the U.S. government who simply printed money to buy them. If those reports are true (I don’t know as I don’t believe any of the flow data as there is no audit trail), then the Chinese no longer hold the supposed magical and mystical power over the United States that the threat of bond sales holds, now do they? Did the United States defuse that bomb at the expense of higher commodity prices and a weaker dollar? If so, it’s a great example of how all loans get repaid with interest in one way or the other. Instead of just paying back the loans, you pay them back every time you eat, every time you fill up at the gas station.

The Home Builder’s Housing Market Index cratered again in June, falling from the already depression level read of only 16 all the way to 13. And June is the middle of spring, it’s supposed to be the time of year that shows strength. Yikes.