Wednesday, August 3, 2011

Morning Update/ Market Thread 8/3

Good Morning,

Equity futures are up a little this morning following yesterday’s 265 point rout. The dollar is lower, bonds are flat, oil is up slightly, gold set another new record leaping to $1,675 before pulling back a little, silver is higher, and food commodities are mixed.

With the impossible math on full display thanks to the central thieves and clowns in D.C., China’s leading credit agency went ahead and downgraded the debt of the United States:
Chinese agency downgrades U.S. credit rating

Beijing (CNN) -- Although the United States narrowly avoided an unprecedented default following congressional approval of a last-minute compromise plan to raise the debt ceiling, China's leading credit rating agency Wednesday downgraded U.S. sovereign debt after putting it on negative watch last month.

The Dagong Global Credit Rating Company, which lowered the United States to A+ last November after the U.S. Federal Reserve decided to continue loosening its monetary policy, announced a further downgrade to A, indicating heightened doubts over Washington's long-term ability to repay its debts.

It said the gloomy assessment -- much lower than the AAA ratings given by the so-called "big three" Western agencies Moody's, Fitch, and Standard and Poor's -- was inevitable given the level of market concern generated by the stalemate between Democrats and Republicans over the debt ceiling.

"The squabbling between the two political parties on raising the U.S. debt ceiling reflected an irreversible trend on the United States' declining ability to repay its debts," Dagong Chairman Guan Jianzhong told CNN.

"The two parties acted in a very irresponsible way and their actions greatly exposed the negative impact of the U.S. political system on its economic fundamentals," he said.

Ironically, Dagong's move could hurt not just the United States but also China, the largest foreign owner of U.S. debt with holdings worth almost $1.2 trillion.

"Our downgrade simply reflects reality," Guan said. "Our rating didn't cause China to lose any money --- it was the inappropriately high ratings for the U.S. by Western agencies that had led China to make risky investments in U.S. debt."

Observers say China, whose foreign exchange reserves now stand at $3.2 trillion, has had little choice but to buy U.S. Treasury bonds.

Of course the west doesn’t take this truth telling seriously because China is a mess itself. While China isn’t running structural deficits that’s only because it has printed massive amounts of money, and in fact is more like the United States was just after the roaring twenties. There, like here, they had an industrial revolution… that was followed by the current credit and money bubble, which if it follows the same pattern will be followed by a Great Depression… just sayin’. Still, with other nations downgrading our debt, it means that they will expect higher rates of return.

The Challenger Job-Cut report is showing another large increase in mass-layoffs, rising from 41,432 in June, to 66,414 in July, which is a staggering 60.2% one month increase! It is true that relative to the 2007/2008 period that mass layoff announcements were low, making a large percentage increase like that possible. Still, we went through a huge period of job shedding, never recovered, and now job shedding is picking up once again. Here’s Econohope:
Company news is seeing a noticeable upturn in layoff announcements, measured in July by Challenger whose count shows 66,414 vs 41,432 in June and vs 41,676 in July last year. The latest count is the highest since March last year. The report warns that the majority of the layoffs came from major employers in bellwether industries -- Merck, Borders, Cisco, Lockheed, Boston Scientific. July aside, the reports stresses that job cuts over the last year have been extremely low.

Didn’t know there were that many jobs left to shed!

The ADP Jobs Report fell dramatically from their last month’s wild guess that turned out to be waaaayyyy off. Their 157,000 prior was revised down to 145,000 and this month fell to a supposed 114,000. So what… since they were so far off last month they lower this month? How exactly are they arriving at their guesses? If you’re smart, you don’t care, you will simply ignore these manipulators and go out and invest in something real. I keep track only to watch the robbery in progress.

Speaking of criminals, the hypocritical Mortgage Banker’s Association claims that Purchase Applications rose 5.1% in the past week, and that the Refinance Index rose 7.1%.
A big drop in mortgage rates tripped a surge in mortgage applications during the July 29 week. The number of purchase applications rose 5.1 percent in the week but is still no higher than a month ago with the report, issued by the Mortgage Bankers Associations, stressing that activity is at a low base and remains weak by historical standards. Refinancing applications rose 7.8 percent and here too the report is downbeat noting that volume is still 30 percent below the year-ago level with negative equity and a weak jobs market continuing to constrain borrowers. Thirty-year mortgages averaged 4.45 percent, down 12 basis points in the week, with 15-year mortgages down 15 basis points to a new low for the survey at 3.52 percent.

Laugh out loud. Stop it please, you’re killing me… again, whatever, not believable, who cares, go invest in something real and do your best to help put these criminals in jail.

Factory Orders and the Service ISM are released at 10 Eastern.

Yesterday’s close was actually a 6 month closing low for the S&P, it closed beneath both the June and March lows. This pattern can be construed as a Head & Shoulder’s pattern, and it can also be construed bullishly as a fourth wave flat. A break below the 1,250 support area, just below where we are currently would break the neckline and either confirm the H&S, or would be a sucker move to draw in money on the short side only to launch another wave higher:

Don't forget that we have a VIX market buy signal now in place, but then again the VIX has been lower the past two days which can also mean that panic selling has not taken place and that still lower is in the offing.

For me, no thanks, it’s hard to have conviction one way or the other when you know how manipulated the markets are and how the “Fed” and politicians will stop at nothing to advance their game. My warning is don’t play this game until a major restructuring of our money and political systems takes place along with clearing out the impossible math of debt.

Déjà vu, it makes me feel like I’ve been here before…