Monday, August 15, 2011

Morning Update/ Market Thread 8/15 – Hyperinflationary Melt-Up/ Waves of Deflation Edition…

Good Morning,

Equity futures are slightly positive this morning on the back of a rapidly descending dollar. Bonds are higher, oil, gold, and silver are flat, while food commodities are slightly higher.

The futures appear to be making a rising wedge or bearish flag. If they stay within the confines of that flag over the next couple of days, then I will expect it to break downwards… but if it breaks upwards, it could still be creating a rising wedge and the upper boundary will have to be watched. Regardless, HFT fun and games are a given:

Speaking of HFT fun and games, the last week was the most volatile week in history point-wise, with 4 days of 400+ point swings on the DOW. What’s that telling you? That the markets are exactly what I’ve been saying all along – not real, highly manipulated, and mostly fluff. Why would any rational person “invest” in such a market? Beyond me, my advice is to get real, stay real, and tell the supposed experts who contributed to this nightmare where to go.

Think about it… The “Fed” creates massive quantities of money from nothing, we are spewing debt out all orifices, we raise the debt ceiling, the U.S. debt is downgraded… that results in what should be higher interest rates. But the “Fed” is creating money from nothing to buy bonds to keep interest rates artificially low. Can’t allow rates to rise because interest expense becomes tremendous – so they print more to buy more bonds. And the spiral continues.

Whenever that spiral is interrupted waves of deflation result. But because the “Fed” is in control and is not allowing the debt to clear, each wave of deflation is met with more printing, and thus the primary trend is inflation. Inflation is the death of all currencies throughout history, all of them – ours will be no exception that is painfully obvious.

Daily Thread commentator hsir135 posted a couple of good charts over the weekend that are a good reminder of the primary trend. The first is our current account deficit – of course it’s just a fraction of the total real deficit, but let’s live for a moment in the “Fed’s” fantastic lie:

The next chart shows the U.S. Current Account Deficit with the debt limit increases and also the price of gold. Amazing correlation there with gold, those who got real a long time ago have protected themselves, while those who bought into the paper fluff are left on a nauseating roller-coaster ride of fraud and deceit:

Remember, my opinion is that gold is acting to maintain its worth – that doesn’t mean it should be what backs our money. What’s far more important than WHAT backs our money is WHO is in control of creating it.

Speaking of waves of deflation, the Empire State Manufacturing Index took another header in August, falling from -3.76 to -7.72 when +1.0 was expected by the clowns. Here’s Econohope:
The first indications on the August manufacturing sector are strongly negative. The Empire State index fell nearly four points into more deeply negative territory, at minus 7.72 to indicate monthly contraction in general business conditions. Details show a third straight monthly contraction in new orders, down more than two points to minus 7.82. Unfilled orders are contracting very deeply, to minus 15.22 vs July's minus 12.22. With new orders on the slide and backlog having been worked down, the outlook for the region's shipments and employment is negative.

The six-month outlook is in fact the most negative aspect of the August report. The six-month outlook for new orders, at plus 6.52, and for shipments, at plus 7.61, are the lowest since 9/11. The overall outlook reading at 8.70 is down nearly 25 points in the month for the lowest reading since early 2009.

Hopefully the six-month readings will be only be temporary, tied specifically to the debt-ceiling drama and what is hopefully now faded market volatility. Industrial production data tomorrow will offer hard data on the manufacturing sector during July while the Philly Fed's report on Thursday will offer more anecdotal data on this month's conditions.

Uh, huh, “hopefully…”

The TIC fraudulent data for June (remember that far back, nice timely “data”), came in barely positive at +3.7 billion, but the Net overall data was negative for the second month in a row, coming in at -29.5 billion. This report is HIGHLY questionable in my opinion as we cannot audit the “Fed” and they do not account publically for all their swap lines and other backdoor dealings. In fact, I would go so far as to call this report, and almost anything that comes from the “Fed” or Treasury, suspect to be polite - all their reports should be filed under works of "Fiction." Here’s Econodope:
Selling of US securities by private foreign accounts drove net inflow of long-term securities to a very weak plus $3.7 billion in June vs an already weak and revised plus $24.2 billion in May. Private foreign accounts sold a net $23.0 billion of US long-term securities in the month for the lowest reading on record. Official foreign accounts were an offset at plus $11.5 billion though down from the prior month's $23.2 billion. Foreign demand for US Treasuries, agencies, and corporate bonds was weak across the board though demand for equities was down but still respectable. In a positive, demand for foreign securities by US residents ended a run of outflows with a net $15.2 billion inflow. Low US yields had been pushing domestic investment overseas and limiting investment at home.

But foreign participation in US financial assets is essential for the nation to funds its government and trade debts. And given the effects of the debt-ceiling crisis on investor confidence, the outlook for the July and August TIC reports is not positive. Other details for June show a second straight outflow for total securities which include short-term securities, at minus $29.5 billion vs May's minus $48.8 billion. One positive in today's report is a slight uptick in Chinese holdings of Treasuries, at $1.17 trillion with Japanese holdings only fractionally lower at $911.0 billion.

Here’s the entire TIC report:

TIC June 2011

The Housing Market Index is released at 10 Eastern.

Hmmm, I wonder WHO the real Werewolves of London really are? Think they would fit right into the central banking club…