Friday, August 19, 2011

There Is No Correlation Between Stocks and Crude Oil

Believe your lying eyes! Without the labels, it would be hard to tell the difference!


Crude oil

S&P Futures Collapse Another 20 Points

World Can't Get Enough Gold

New record at $1870/oz.

Thursday, August 18, 2011

Stocks Plunge to New Lows

Dow down 481 points.

Investors Piling Into Gold, Even at $1828/oz.

No Traction Today

And this headline from the Wall St Journal today:

Correlation Between Philly Fed and Jobs

source: Zero Hedge

If this correlation holds, we could see a 700-1000 point down day on the Dow.

Quadruple Whammy of Bad News Hits Stocks

Philly Fed Plunges Into the Abyss

Philly Fed plunged to -30.7 on expectations of +2.0

Some observations from Bloomberg's Joseph Brusuelas:

  • U.S. “sliding into contraction”, given sharp decline in consumer, purchasing managers sentiment, along with ongoing  housing mkt depression, says Brusuelas
  • U.S. existing home sales down 3.5% M/m to 4.67m vs est. increase to 4.9m (range 4.6m-5.2m); prior revised to 4.84m from 4.77m
  • Cancellations likely due to pulling back of credit by banks
  • LEI up 0.5% in July vs est. 0.2% (range 0.5% drop to 0.6% gain)

Dow Plunges 500 Points Before Firming Up

S&P Futures Open Down 35 Points

Dow off more than 250 points and still falling!

CPI Inflation, Jobless Claims Both Surge

from Zero Hedge:
Following yesterday's upside surprise in the PPI, it was only logical that CPI would come higher than expected. However, printing at a 0.7% swing M/M, or the highest in years, was not expected. Broad CPI came at 0.5% in July after dropping -0.2% in June, or 3.6% Y/Y. This was far more than consensus which expected 0.2%. Core CPI however was in line with expectations at 0.2%. The reason for the surge? Gas, food and clothes. "The gasoline index rebounded from previous declines and rose sharply in July, accounting for about half of the seasonally adjusted increase in the all items index. The food at home index accelerated in July and also contributed to the increase, as dairy and fruit indexes posted notable increases and five of the six major grocery store food groups rose...The apparel index continued to rise sharply, increasing 1.2 percent in July; it has increased 3.9 percent over the past three months....The index for nonalcoholic beverages increased 0.9 percent in July as the coffee index continued to rise sharply." Elsewhere confirming that as expected the unemployment situation is deterorating, with 408K initial claims printing, on expectations of 400K, and making sure we dont have a revised 19 out of19 week of consecutive 400K+ prints was last week's revised 395K claims to, hold on to your seats, 399K.  That's right: a 1K in jobs breaks the trend, huzzah! Just as importantly, those on EUCs and Extended benefits continued to plunge, dropping by 43K in the last week. And most frightening, the one year change in Americans receiving Emergency Compensation (EUC) has plunged from 4.7 Million to 3.1 Million. That's 1.6 million Americans who no longer even collect any benefits from the government.

New Global Banking Crisis Emerging, With Epicenter in Europe

A new liquidity and banking crisis appears to be breaking. 

excerpt from WSJ:
"Federal and state regulators, signaling their growing worry that Europe's debt crisis could spill into the U.S. banking system, are intensifying their scrutiny of the U.S. arms of Europe's biggest banks, according to people familiar with the matter.
"The Federal Reserve Bank of New York, which oversees the U.S. operations of many large European banks, recently has been holding extensive meetings with the lenders to gauge their vulnerability to escalating financial pressures. The Fed is demanding more information from the banks about whether they have reliable access to the funds needed to operate on a day-to-day basis in the U.S."

and from Zero Hedge last night:
"In one sign of how European banks may be having trouble getting dollar funding, an unidentified European bank on Wednesday borrowed $500 million in one-week debt from the European Central Bank, according to ECB data."

Gold Never Loses Its Luster In Uncertain Times

It has surpassed $1812/oz. so far.

Stocks See Dawn Deep In the Red

ES has been down as much as 25 points! Dow was down about 180.

from WSJ:

LONDON—European stocks fell sharply Thursday, with banks plunging further into the red and the euro following suit as concerns about the global economy continued to weigh, while investors suspected that a bout of short selling or hedging by a large investor in the German DAX sent that index plunging nearly 4%..
Following the slump in the DAX, the euro was at $1.4406, down from $1.4427 in late trading Wednesday in New York. The single currency also wasn't helped by comments from former European Commission chief Jacques Delors, who said both the euro currency and the European Union today stand "on the edge of the precipice." In addition, German Finance Minister Wolfgang Schäuble in a letter to leading lawmakers rejected a boost to the volume of the current euro-zone rescue fund, the European Financial Stability Fund, according to the Bild newspaper.

Wednesday, August 17, 2011

Dead Flat!

Rosenberg on Why Double Dip Is Here

Bloomberg News has an article titled No Double Dip Yet With U.S. Economy Punching Up Growth Figures. Completely amazing, including the commentary from the economists in the article who seem to prefer forecasting based on coincident or lagging indicators. Because the data are subject to substantial revisions in the future, it is absolutely imperative that economic forecasters draw on their judgement and experience when making their predications (have a look at On Economy, Raw Data Get a Grain of Salt on the front page of today's NYT for case in point). Here is the reality.
  • Challenger layoffs have surged 80% in the past three months. That will lead to higher jobless claims in the near-term.
  • Consumer buying intentions for big-ticket items has sagged to recession levels. Watch the savings rate in the next six months — this will be key to the macro outlook.
  • Productivity has declined for two straight quarters and actually, unless companies wilfully want their margins to implode, will soon respond by shedding labour input.
  • This already goes down as the weakest recovery on record despite unprecedented policy stimulus. Every dollar of balance sheet expansion at the Fed and the Treasury since the beginning of 2009 has generated 80 cents of incremental GDP gains. Not only is that a pitiful multiplier but now that there is no more stimulus, it is a legitimate question as to how an economy that only operated on policy steroids for the past two-and-change years is going to perform.
  • There is no doubt that the economy is not yet contracting, but the debate is whether it will start to by year-end. The withdrawal of stimulus is feeling like a policy tightening. And after coming off a mere 0.8% annual rate of gain in GDP so far this year, the question is how the financial shock since mid-year in the form of higher debt levels and equity cost of capital is going to impact an already near-stagnant economy.
  • The data on a three-month basis are following a classic pre-recession pattern and so is the stock market. Only three times in the past did the S&P 500 go down as much as it has without a recession ensuing. Market signals are important and this is what most economists missed in 2007. The 5-year note yield at 0.93% is a tell-tale sign — and is negative in real terms. Even with the speculative grade default rate falling in July to 2.3% from 1.9%, spreads are 150 basis points wider now than they were a month ago.
  • Do these economists realize that S&P financials are down 25% from this year's highs? Can they explain how this fits into their forecast? The economy can hardly grow without credit unless it receives ongoing doses of government support, which for now is no longer forthcoming. The bank stocks are down more from their early highs than they were from January to August 2007 when the downturn was right around the corner.
  • In plain-vanilla manufacturing inventory cycles, recessions are typically separated by five years, sometimes even longer as we saw in the 1980s and 1990s. But in a balance sheet/deleveraging cycle, recessions come more quickly — every two-to-three years. That puts late 2011/early 2012 in the spotlight. The imbalances in housing and debt were not fully resolved in the last recession, unfortunately enough (there is a nifty article on page A2 of today's WSJ, which cites Zillow research showing that only one-third of the 130 housing markets across the country can be considered "undervalued"). In a vivid sign that housing is no longer responsive to interest rates; mortgage applications for new purchases cratered 10.1% in the August 12th week. They have declined now for three of the past four weeks and are at the lowest level since July 2010.
  • In a sign that households are concentrating more on getting their financial conditions into better shape than making that additional debt-financed purchase, the rate of late credit card payments fell to a 17-year low in the second quarter. Of course that is good news for the future, but going on a diet is never easy over the intermediate term (take it from me). The U.S. consumer is on a debt-reduction plan, having taken the aggregate level of liabilities down $50 billion in Q2. If we're not mistaken, Wal-Mart had some pretty cautious things to say about the U.S. consumer yesterday and we see that Dell, having missed its estimates today, also discussed that it is seeing a lack of "confidence" in "both corporate and household sectors" and "uncertain demand" as it cut its guidance for the year.
  • Core Europe is stagnating and the Asian economy is cooling off. The Q2 contraction in Hong Kong GDP was the canary in the coal mine; Chinese industrial production contracted 0.4% MoM (based on a seasonally adjusted basis calculated by Haver Ana lytics) in July as well. We always said that Korea is important to watch because of its global export exposure, and with this in mind we recommend that you read Global Woes Land a Punch in Korea on page C5 of the WSJ. This bodes ill for the U.S. export sector. Also take note that the sharp slowing in core Europe is spreading through the entire continent — have a look at Slowdown Spreads to Central Europe on page 3 of today's FT.
  • We have to understand that recessions are part of the business cycle. There is no reason to be fearful. Just be prepared. Hedge funds that are long high- quality, non-cyclical companies with strong balance sheets and dividend growth and yield attributes while being short small-caps that are highly cyclical and expensive is a money-making strategy in a recession. Hybrids with low equity correlations and BB-like yields, corporate bonds in defensivesectors with a visible cash-flow stream and a pervasive focus on energy, raw food, and gold — that is the ideal portfolio in an environment like this (as far as the food theme is concerned, go to page Cl of the WSJ and have a read of Chinese Hunger for Corn Stretches Farm Belt).
  • Finally, if you're looking for the next shoe to drop, it may very well be in U.S. commercial real estate. We highly urge that you have a look at REITs Losing Haven Appeal on page C6 of the WSJ as well as Buyers Wary of Building Bubble on Cl (institutional investors are starting to back away from what appears to be an oversupplied and overpriced commercial property market in several major cities).
If you look at the monthly U.S. GDP data, it is already apparent that the U.S. economy is fraying at the edges. The economy contracted in both May and June and has shrunk now in four of the past six months. That sounds pretty recessionary to us. As the chart below shows, over the past six months, real GDP has actually declined at a 1.5% annual rate, which is just about as bad as it got at the worst point of the tech wreck a decade ago.
Forewarned is forearmed.

Source: Gluskin Sheff

Flatline Bounce, Then More Selling

I'm surprised that the selling has continued. I expected the bounce to persist. There is little news today, and even less conviction!

Europe persists in its apparent meltdown. Perhaps that's dragging down the euphoria today. Oddly, however, the Euro is up and the Dollar is getting trashed again. What does that say about what we (Obama) are doing?

Germany can't join the Eurobond mania without an amendment to its Constitution, and with overwhelming domestic opposition to it, I don't see any likelihood of it occurring. The European monetary union is almost certainly doomed, at least in its current form, and so is the Euro. Europe GDP is contracting, and I don't see any way out of this but pain.

Stocks Reverse on Lack of Conviction

On the Inflation Theme, Corn At 3-Year Highs

Inflation Resumes Uptrend

from Zero Hedge:

Following a big drop in June energy prices, which pushed the broader PPI to a one year low sequential change of -0.4%, the PPI is once again in an uptrend, rising by 0.2% in July, higher than consensus of 0.1%. Core PPI was higher by 0.4%, following the 0.3% increase in June, and double consensus of 0.2%.

It's a Meltup Day

Tuesday, August 16, 2011

Not Convinced! Market Sells Off Following Merkel/Sarkozy Press Conference

Global financial markets were expecting an announcement of Eurobonds, but were disappointed, for now! Sarkozy said that the EU is not currently structured or sufficiently unified for Eurobonds.

We went from flat-line down to new lows in less than one hour! We are now setting new lows for the day, with the S&P futures down about 19 points. Amazing reversal! The market isn't convinced that this will make Europe whole! It won't! Europe will continue to flounder from one bad policy to the next in a process of self-immolation!

Choppy Market: Time for Micro Trading

Reversal Back to Red

The stock market rally was short-lived, and has reversed back to the red side. It's a day for more worry, but despite the dark sentiment emanating from Europe, the news in the United States is not too bad today. I wouldn't be surprised if we see another rally sometime today. Unless there is really awful news, Wall Street tends to rally.

Industrial Output Better Than Expected

Finally, some good news:
July industrial production came in slightly better than consensus expectatins of 0.5%, printing at 0.9% for the biggest rise of 2011 to date. This followed an upward revised June of 0.4%, up from 0.2%. Manufacturing output rose 0.6 percent in July, as the index for motor vehicles and parts jumped 5.2 percent, the biggest driver for the spike, and production elsewhere moved up 0.3 percent.

Wall Street Ignores Data, Rallies in Early American Session

Headed for Hyperinflationary Depression?

"The world is now staring into the abyss and we are most likely entering the Dark Years which I wrote about two years ago. The consequences will almost certainly be unlimited money printing and a hyperinflationary depression." -- Egon Von Greyerz

ES Dips 17 Point on Disappointing Eurozone Data

from Zero Hedge:
Economic growth is faltering in all major economies with data this morning showing Eurozone and German GDP growth slowing. Eurozone GDP rose 0.2% from the first quarter, when it increased 0.8% while German GDP growth fell by more than expected in the second quarter, dropping to a derisory 0.1%. Double dip recessions involving inflation and therefore stagflation seem increasingly likely.The conditions today are far more bullish than in the 1970’s as in the 1970’s the U.S. was the largest creditor nation in the world whereas today the U.S. is the largest debtor nation the world has ever seen. Gold went parabolic in the 1970’s after a period of stagflation. Today, we appear to be on the verge of a period of stagflation.

Monday, August 15, 2011

While the Dollar Gets Trashed!

Gold Blasts Off Again!

Empire Ignored: Terrible, But Wall St Rises Anyway!

from Stone McCarthy:"You usually don't get three straight months of negative results unless you are in a recession (Note: NY Fed historical data only started in July 2001)." SMRA continues: "If that's not bad enough for you, the forward-looking new orders index fell to -7.8 in August, after posting -5.5 in July and -3.6 in June. Not only is the latest reading a new low in the recent string of negative results, it's also the third straight month of contraction."

There is no way to sugar-coat the latest Empire State Index. It's terrible! New orders are at the worst level in a decade? That's just plain ugly! And the general conditions index dropped a dreadful 20 points in a single month! Clearly, economic conditions are deteriorating rapidly!

from Zero Hedge:
The first August leading indicator starts off with a thud, after the Empire State manufacturing index just confirmed that the recent brief push higher was, well, transitory. Printing at -7.72, on expectations of 0.00, down from -3.76, the first diffusion index of the month just saw a third consecutive contractionary print in a row, setting the stage for much more ugliness in August. The summary was succint: "Business conditions continue to deteriorate: "The general business conditions index fell four points to -7.7. The new orders index also fell, inching down to -7.8; the negative reading—the third in a row—indicated that orders had declined. The shipments index held steady at 3.0, a sign that shipments were slightly higher over the month. The unfilled orders index continued to drift down, falling three points to -15.2. The delivery time index was little changed at 0.0. The inventories index dropped two points to -7.6, suggesting that inventory levels were down slightly." What is surprising is not that the current outlook is deteriorating, but that for the first time, the future index finally cracked as the hopium has finally ran out: "The future general business conditions index fell twenty-four points to 8.7, its lowest level since February 2009. The future new orders and shipments indexes dropped to their lowest levels since September 2001." I.e., hope is no more. And there is nothing to take its place.

Stocks Climb the Wall of Worry

Bring it on!

Sunday, August 14, 2011

Liar, Romer, Pants on Fire!

by Bruce Krasting at Zero Hedge:

Christina Romer is one on the leading liberal economist in the nation. She’s no dummy. Valedictorian from Princeton, PHD from MIT, former Chairperson of the Council of Obama’s council of Economic Advisors and now she is a professor of economics at U.C. Berkley. She’s also a liar.
Ms Romer penned a piece for the NYT over the weekend. This was her plea for, guess what, more fiscal and monetary stimulus.

Romer acknowledges that US public sector debt is already too high. But she argues that we are nowhere near the levels that were reached post WWII. Her words:
At the end of World War II, that ratio hit 109 percentone and a half times as high as it is now.
One and a half times Ms Romer? (This equates to a debt to GDP of 72%) Where does that number come from? A few facts:
First, total debt is now $14.588 Trillion. From Treasury Direct:
GDP as measured by the BLS was running a tad over $15b as of the most recent read. From BLS:
Current-dollar GDP -- the market value of the nation's output of goods and services -- increased 3.7 percent, or $136.0 billion, in the second quarter to a level of $15,003.8 billion.
Put the two together and the actual debt to GDP is currently at 97.25% (and rapidly rising). We will exceed the 100% barrier over the next six months.
What Ms Romer has done to spin her number is to exclude all of the debt ($4.7 Trillion) of the nation that is held by the Intergovernmental Accounts ("IG"). This is fast and loose economics. Ms. Romer knows that. But she elects to mislead the public with a totally false claim.
Does Romer think the debts owed to Social Security, Medicare, Military Pensions and Federal employees pension funds don’t count? If she takes that position, she is flat wrong. I maintain that the Intergovernmental debts are much more toxic to the economy than the debt held by the public.
The simple reason is that the Intergovernmental accounts have to be paid back in full. The process of running down the intergovernmental accounts has already started. It will accelerate very rapidly for the next decade. Every penny of the draw down of these accounts MUST result in an increase in debt held by the public.
The US has a huge outstanding of debt to the public. But neither the interest on that debt or the principal has to be paid back. This debt can be rolled over to a new maturity and a new investor. That happens virtually every single day. That is not the case with the Intergovernmental account. All of those Special Issue Treasury notes held by the various government agencies are going to come due over the next 20 years. When that happens it will result in a dollar for dollar increase in Debt to Public. Exactly the worst possible outcome.
Ignoring the IG debt and only focusing on the debt held by the public is a dangerous thing to do. It is the worst form of denial. To ignore the IG account is equivalent of ignoring the crisis in Medicare and Social Security. But that is precisely what Romer would have our policy makers do.
It’s true that the US economy is running at a pace that is too slow to create enough jobs. I think this is a structural issue. We have a rapidly aging population. We have, for years, been losing our manufacturing base. We have outsourced ourselves to high unemployment and a soft economy. That problem will take years of hard work (and sacrifice) to reverse. Insane levels of deficit spending and an (equally) insane monetary policy that just steals from savers and promotes inflation are not going to address our fundamental weakness.
Ms Romer is one of the Deep Water economists (either coast) who are pushing for more and more debt and more and more spending. She is entitled to her opinion, but she in not entitled to lie about it.