Thursday, July 14, 2011

Morning Update/ Market Thread 7/14 – Burn, Baby, Burn Edition…

Good Morning,

Equity futures are higher this morning even after the U.S. was put on credit watch by Moody’s. The dollar is flat, bonds are lower, oil is higher and getting close to $100 again, gold is testing an unbelievable $1,600 an ounce, silver is shining as a hedge to the lunacy, while the price of food commodities gets further out of reach for the world’s poor.

Yesterday criminal Bernanke flapped his lips about more QE and the commodity markets went wild. Then the insiders got wind of the credit watch and sold equities into it. That action shows two things – first is that more QE is going to royally squick the people of the world with higher prices, and secondly the insider action again shows how corrupt these unfree markets really are… again.

To me the thought of another big QE program is far more scary than another round of deflation, but I know it’s coming at some point and it’s going to be very ugly when it does. Just look at oil… when the first round of QE began oil was at $33 a barrel. When the second round of QE began oil was at $70 a barrel. Now we’re at $100 a barrel, which is already economy choking, and if QE3 has an equal effect you’ll be staring at $140 a barrel and $5 a gallon for gas. That’s just one negative aspect of more printing, but again you know it’s coming at some point, just look at all the pressure to “get a deal” and raise the debt ceiling.

Since the money changers aren’t getting their way, they roll out their puppet President to threaten retirees by withholding their retirement money – oh yeah, nobody sees that threat for what it is. When that fails to work, the money changers get their puppet rating agencies to issue downgrade warnings in another attempt to scare the people in allowing them to make all their numbers bigger and bigger. Of course all the media mantra and scare tactics are completely backwards – it is the act of raising the debt ceiling that should scare the hell out of everyone, and it is that act that should instantly produce credit rating downgrades, not the other way around. So, we are recklessly heading into the great monetary inferno, burn, baby, burn. You know what they say about the road to hell, boy was it hot yesterday.

This morning JPMorgan “beat” estimates again with second quarter income soaring to ONLY $5.43 Billion!! In one quarter! How did they do that? By robbing you in the unfree markets (which they have absolutely no business being in at all), by reducing loan loss provisions AGAIN, and by marking their worthless portfolio of stinking insolvent debt to their own fantasy model. You know, it’s funny, but you would think that a “beat” and that kind of money production would send their stock higher, but in fact it is lower. Maybe I’m not the only one who smells the rot. By the way, false earnings like this completely distort the entire corporate earnings picture giving idiot analysts a sense of well-being to justify their shilling at outrageous valuations (when stripped of accounting fraud).

The PPI settled down in June, primarily due to the falling price of oil at that time. Month over month it went negative .4%, but less food and energy it was still positive .3%. Of course a lower reading here is viewed as a green light for more money printing and thus bad is good, burn, baby, burn:
In June, lower energy costs gave the economy a break. Producer price inflation in June turned negative with prices dropping 0.4 percent, following a relatively soft rise of 0.2 percent in May. The latest number came in lower than analysts' forecast for a 0.3 percent decline. By major components, energy fell a sizeable 2.8 percent after rising 1.5 percent in May. Gasoline dropped 4.7 percent after rising 2.7 percent the prior month. Food costs rebounded 0.6, following a 1.4 percent dip the prior month. At the core level, PPI inflation bumped up to 0.3 percent from 0.2 percent in May and topping the median forecast of 0.2 percent. On a not seasonally adjusted basis for June, the year-ago the headline PPI was up 7.0 percent while the core was up 2.4 percent.

Even with their own trumped up inflation statistics, 7% inflation is raging hot, but of course does not garner the impossible math attention it deserves.

June Retail Sales managed to eek out a .1% positive number. Remember, this statistic way overstates sales as it suffers from survivor bias and is not correctly corrected into a real inflation adjusted number, thus a .1% positive number means that actual sales of real products is down significantly. Don’t expect to hear that from someone whose living depends on fluffing you up:
Retail sales edged up in June despite a price related drop in gasoline sales. Overall retail sales in June edged up 0.1 percent, following a 0.1 percent dip in May (originally down 0.2 percent). The increase in June was marginally better than the median forecast for no change. A rebound in auto sales helped lift overall sales. Motor vehicle sales made a partial 0.8 percent rebound after dropping 1.8 percent in May. Both months' sales were constrained by shortages of models dependent upon parts from Japan.

Excluding autos, sales were flat, following a 0.2 percent gain in May. Analysts expected a 0.1 percent uptick. Here, components were mixed but softened largely by weak gasoline sales. Gasoline dropped 1.3 percent, following a 0.5 percent increase. Sales excluding autos and gasoline in June posted a modest 0.2 percent rise, matching the gain in May.

Outside of autos and gasoline, sales were mixed. The biggest gains were seen in building materials & garden equipment (up 1.3 percent); clothing & accessories (up 0.7 percent); and general merchandise stores (up 0.4 percent). Also gaining were food & beverage, nonstore retailers, and miscellaneous store retailers.

The largest decliners were furniture & home furnishing (down 0.8 percent); sporting goods, hobby & book stores (down 0.7 percent); and food services & drinking places (down 0.4 percent). Also falling were electronics & appliances and health & personal care.

Retail sales on a year-ago basis in June posted at 8.1 percent, compared to 7.8 percent in May. Excluding motor vehicles, sales were up 7.9 percent on a year-on-year basis, compared to 8.0 percent in May.

Essentially, overall retail sales in June were soft, mixed and about as expected. However, today's drop in initial jobless claims may be encouraging for future sales along with supply constraints in the auto sector being resolved.

Year over year increases in Retail Sales do not reflect actual increased sales, instead it is simply a partial inflation indication.

The weekly Jobless Claims came in lower than last week and on expectations of 405,000 which is still way above an overall job losing proposition. Note this is an estimate based upon a short week and that the prior week was revised higher by three times the usual amount. Also, Econohay would like you to believe that the 11,500 layoffs due to Minnesota stopping business is no big deal, but in fact it is a big deal, it is another symptom of a debt saturated society and it has massive ripple effects that are just now starting to be seen - like Miller beer had to stop distributions in the state as they could not renew their business license – I know it’s just beer, but how many people will be laid off because of that? Debt is an ugly thing, perhaps it will take a lack of brain numbing rot to bring the people to their senses? I know, I know, American Idol is still on:
The headline decline in jobless claims is good news though there's special factors at play that cloud the July 9 week. Initial claims fell 22,000 to an as-expected level of 405,000 but the period is a shortened one that includes the July 4 holiday (prior week revised upward to 427,000). Another factor is uncertainty over the week-to-week timing of shutdowns, including auto retooling, in the manufacturing sector, a seasonal factor that lowers claims after adjustment and always makes for uncertain readings at this time of year. One factor that is clearly inflating claims is the government shutdown in Minnesota which added 11,500, before adjustment, to the week's total. A look at the four-week average, especially important for uncertain periods, is favorable, down 3,750 to 423,250.

Continuing claims for the July 2 week rose 15,000 to 3.727 million with the four-week average up slightly to 3.719 million. Continuing claims have been steady at recovery lows for the last six weeks or so. The unemployment rate for insured workers is unchanged for the fourth straight week at 3.0 percent.

Initial claims did come down in the latest week but whether this is the beginning of a trend is too soon to say. Until claims fall below 400,000, optimism on the jobs market will continue to be limited.

400k is not the key number, 350k and below is where jobs are being created and it’s been years since we’ve had a print that low.

Note that the VIX failed to stay beneath the 50 and 200dma’s:

Burn, baby, burn.